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A Fiscal Theory of Hyperdeflations? Some Surprising Monetarist Arithmetic

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  • Buiter, Willem H

Abstract

For the range of "small" government deficits for which two stationary solutions exist, an increase in the deficit reduces the long-run rate of inflation if the locally-stable (high inflation) stationary equilibrium is chosen, increases it if the locally- unstable (low inflation) equilibrium is chosen. Explosive, unstable behavior always involves a steadily increasing negative rate of inflation, i.e. a "hyperdeflation." There always exist deficits so large that stationary solutions do not exist. Behavior then is unstable and explosive: hyperinflations are ruled out and hyperdeflations must result. Empirical studies of hyperinflations should no longer use the rational-expectations version of the Sargent-Wallace model as a theoretical backdrop. Copyright 1987 by Royal Economic Society.

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  • Buiter, Willem H, 1987. "A Fiscal Theory of Hyperdeflations? Some Surprising Monetarist Arithmetic," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 111-118, March.
  • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:1:p:111-18
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    Cited by:

    1. Willem Buiter, 2000. "The Fallacy of the Fiscal Theory of the Price Level, Again," CESifo Working Paper Series 303, CESifo Group Munich.
    2. Gutiérrez Huerta, María José & Vázquez Pérez, Jesús, 2002. "Explosive Hyperinflation, Inflation Tax Laffer Curve and Modelling the use of Money," DFAEII Working Papers 2002-27, University of the Basque Country - Department of Foundations of Economic Analysis II.
    3. Buiter, Willem H., 1999. "The Fallacy of the Fiscal Theory of the Price Level," CEPR Discussion Papers 2205, C.E.P.R. Discussion Papers.
    4. 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.
    5. Alexandre Sokic, 2008. "Modelling the transaction role of money and the essentiality of money in a hyperinflation context," Working Papers of BETA 2008-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Alexandre Sokic, 2007. "Monetary hyperinflations and money essentiality," Working Papers of BETA 2007-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 205-220, Autumn.
    8. Vazquez, Jesus, 1998. "How high can inflation get during hyperinflation? A transaction cost demand for money approach," European Journal of Political Economy, Elsevier, vol. 14(3), pages 433-451, August.
    9. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 205-220, Autumn.
    10. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    11. repec:sbe:breart:v:22:y:2002:i:2:a:2736 is not listed on IDEAS
    12. 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.

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