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The Conquest of South American Inflation

  • Thomas Sargent
  • Noah Williams
  • Tao Zha

We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that assigns roles both to fundamentals in the form of government deficits that are financed by money creation and to destabilizing expectations dynamics that can occasionally divorce inflation from fundamentals. Levels and conditional volatilities of monetized deficits drove most hyperinflations and stabilizations, with a notable exception in Peru, where a cosmetic reform of the type emphasized by Marcet and Nicolini occurred. (c) 2009 by The University of Chicago. All rights reserved..

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 117 (2009)
Issue (Month): 2 (04)
Pages: 211-256

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Handle: RePEc:ucp:jpolec:v:117:y:2009:i:2:p:211-256
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
  2. Martin Ellison & Liam Graham & Jouko Vilmunen, 2005. "Strong contagion with weak spillovers," Computing in Economics and Finance 2005 30, Society for Computational Economics.
  3. Sargent, Thomas J, 1981. "Interpreting Economic Time Series," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 213-48, April.
  4. James D. Hamilton & Daniel F. Waggoner & Tao Zha, 2007. "Normalization in Econometrics," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 221-252.
  5. Adam, Klaus & Evans, George W. & Honkapohja, Seppo, 2006. "Are hyperinflation paths learnable?," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2725-2748, December.
  6. Kenneth Kasa, 2000. "Learning, large deviations, and recurrent currency crises," Working Paper Series 2000-10, Federal Reserve Bank of San Francisco.
  7. Cho, In-Koo & Sargent, Thomas J., 2000. "Escaping Nash inflation," Working Paper Series 0023, European Central Bank.
  8. Thomas J. Sargent & Noah Williams, 2003. "Impacts of priors on convergence and escapes from Nash inflation," Working Paper 2003-14, Federal Reserve Bank of Atlanta.
  9. Guillermo Mondino & Federico Sturzenegger & Mariano Tommasi, 1992. "Recurrent High Inflation and Stabilization, A Dynamic Game," UCLA Economics Working Papers 678, UCLA Department of Economics.
  10. Robert Tetlow & Peter von zur Muehlen, 2004. "Avoiding Nash Inflation: Bayesian and Robus Responses to Model Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 869-899, October.
  11. Marcet, Albert & Nicolini, Juan Pablo, 1998. "Recurrent Hyperinflations and Learning," CEPR Discussion Papers 1875, C.E.P.R. Discussion Papers.
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  14. Imrohoroglu, Selahattin, 1993. "Testing for sunspot equilibria in the German hyperinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 289-317.
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  17. William Poole & Robert H. Rasche, 2002. "Flation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 1-6.
    • William Poole, 2002. "Flation," Speech 49, Federal Reserve Bank of St. Louis.
  18. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
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