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Inflation Tax and Money Essentiality

In: Exploring the Mechanics of Chronic Inflation and Hyperinflation

Author

Listed:
  • Fernando de Holanda Barbosa

    (Getulio Vargas Foundation Graduate School of Economics (EPGE/FGV))

Abstract

This chapter addresses the issue of money essentiality using Brock’s (1975) model. We present an argument which casts doubt on the conclusion reached by Obstfeld and Rogoff (1983), henceforth called O–R, based on the same theoretical framework. According to O–R, speculative hyperinflation—under a pure fiat money regime—can be ruled out only when severe restrictions are placed on individual preferences, e.g., agents must have infinitely negative utility when their real balances are zero. We argue that this restriction can be tested with data from hyperinflation experiments by looking at the behavior of the inflation tax, as real balances approach zero.

Suggested Citation

  • Fernando de Holanda Barbosa, 2017. "Inflation Tax and Money Essentiality," SpringerBriefs in Economics, in: Exploring the Mechanics of Chronic Inflation and Hyperinflation, chapter 0, pages 51-59, Springer.
    • Handle: RePEc:spr:spbchp:978-3-319-44512-0_5
    DOI: 10.1007/978-3-319-44512-0_5
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    5. Alexandre Sokic, 2008. "Theoretical support for a new class of demand for real cash balances in explosive hyperinflations," Working Papers of BETA 2008-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Fernando de Holanda Barbosa, 2017. "Competitive Equilibrium Hyperinflation Under Rational Expectations," SpringerBriefs in Economics, in: Exploring the Mechanics of Chronic Inflation and Hyperinflation, chapter 0, pages 77-91, Springer.
    7. Fernando de Holanda Barbosa & Tito Nícias Teixeira da Silva Filho, 2008. "Testing Hyperinflation Theories Using the Inflation Tax Curve: A Case Study," Working Papers Series 166, Central Bank of Brazil, Research Department.
    8. Alexandre Sokic, 2007. "Monetary hyperinflations and money essentiality," Working Papers of BETA 2007-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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