Testing Hyperinflation Theories Using the Inflation Tax Curve: A Case Study
This paper tests hyperinflation theories using the inflation tax curve. This curve is estimated directly instead of the usual approach which is a by-product of demand for money empirical estimates. The inflation tax functional form encompasses several specifications as particular cases and allows to test whether or not money is inelastic. This strategy is applied to the Brazilian annual data covering almost half a century. The money inelasticity hypothesis is rejected. Thus, both the bubble and the strict hyperinflation hypotheses are rejected. The weak hyperinflation hypothesis is not rejected and the Brazilian economy could have been in the 'wrong' side of the Laffer curve for some time during hyperinflation. This outcome, contrary to conventional wisdom, is predicted by the weak hypothesis.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Easterly, William & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1992.
"Money demand and seignorage - maximizing inflation,"
Policy Research Working Paper Series
1049, The World Bank.
- Casella, Alessandra, 1989. "Testing for rational bubbles with exogenous or endogenous fundamentals : The German hyperinflation once more," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 109-122, July.
- Jurgen A Doornik & Henrik Hansen, .
"An omnibus test for univariate and multivariate normalit,"
W4&91., Economics Group, Nuffield College, University of Oxford.
- Jurgen A. Doornik & Henrik Hansen, 2008. "An Omnibus Test for Univariate and Multivariate Normality," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 927-939, December.
- Sallum, Elvia Mureb & Barbosa, Fernando de Holanda & Cunha, Alexandre Barros da, 2005.
"Competitive Equilibrium Hyperinflation under Rational Expectations,"
Economics Working Papers (Ensaios Economicos da EPGE)
578, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Fernando Barbosa & Alexandre Cunha & Elvia Sallum, 2006. "Competitive equilibrium hyperinflation under rational expectations," Economic Theory, Springer, vol. 29(1), pages 181-195, September.
- de Holanda Barbosa, Fernando & Barros da Cunha, Alexandre, 2003. "Inflation tax and money essentiality," Economics Letters, Elsevier, vol. 78(2), pages 187-195, February.
- 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.
- Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, March.
- Engsted, Tom, 1993. "Cointegration and Cagan's Model of Hyperinflation under Rational Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 350-60, August.
When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:166. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francisco Marcos Rodrigues Figueiredo)
If references are entirely missing, you can add them using this form.