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Modelling the Transaction Role of Money and the Essentiality of Money in an Explosive Hyperinflation Context

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  • Alexandre Sokic

Abstract

This paper shows firstly that the cash-in-advance model presents exactly the same kind of limitations as the money-in-the-utility-function model for characterizing explosive hyperinflation. These limitations relate to sufficient money essentiality in the sense of Scheinkman [1980]. Thereby this paper departs from Gutierrez and Vazquez [2004] and contributes to the understanding of failure of the Cagan inflationary finance models with perfect foresight. Secondly, it shows that the inclusion of the goods market equilibrium condition calls into question the validity of explosive hyperinflationary paths as equilibrium paths in the cash-in-advance model. Two solutions are proposed to save the validity of explosive hyperinflation paths.

Suggested Citation

  • Alexandre Sokic, 2010. "Modelling the Transaction Role of Money and the Essentiality of Money in an Explosive Hyperinflation Context," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(3), pages 387-396, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201009)166:3_387:mttrom_2.0.tx_2-s
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
    2. María-José Gutiérrez & Jesús Vázquez, 2004. "Explosive Hyperinflation, Inflation-Tax Curve, and Modeling the Use of Money," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(2), pages 311-311, June.
    3. de Holanda Barbosa, Fernando & Barros da Cunha, Alexandre, 2003. "Inflation tax and money essentiality," Economics Letters, Elsevier, vol. 78(2), pages 187-195, February.
    4. Evans, J Lynne, 1995. "The Demand for Money: Hyperinflation or High Inflation Traps," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(0), pages 49-56, Suppl..
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    Cited by:

    1. Alexandre Sokic, 2012. "The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money," German Economic Review, Verein für Socialpolitik, vol. 13(2), pages 142-160, May.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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