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Speculative hyperinflations: when can we rule them out?

  • Óscar J. Arce

    ()

    (Banco de España)

Motivated by a strong degree of hysteresis in the stock of monetization observed after the end of hyperinflations, I provide a cash-and-credit model in which the use of money exhibits some persistence because individuals can establish long-lasting credit relationships. This feature helps to account for the main stylized facts of extreme hyperinflations and reconcile some conflicting views on their causes, development and end without departing from rational expectations. Unlike the existing literature, I show that when hysteresis is possible, an orthodox fiscal-monetary reform that successfully stops a speculative hyperinflation may not be sufficient to prevent it.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0607e.pdf
File Function: First version, April 2006
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0607.

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Length: 46 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:bde:wpaper:0607
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  6. Nicolini, Juan Pablo, 1996. "Ruling out speculative hyperinflations The role of the government," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 791-809, May.
  7. Chang, Roberto, 1989. "Endogenous Currency Substitution, Inflationary Finance, And Welfare," Working Papers 89-12, C.V. Starr Center for Applied Economics, New York University.
  8. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc.
  9. 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-, June.
  10. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
  11. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
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  13. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
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  15. repec:cup:macdyn:v:7:y:2003:i:1:p:89-118 is not listed on IDEAS
  16. Van Zandt, Timothy & Lettau, Martin, 2003. "Robustness Of Adaptive Expectations As An Equilibrium Selection Device," Macroeconomic Dynamics, Cambridge University Press, vol. 7(01), pages 89-118, February.
  17. 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.
  18. Peter N. Ireland, 1992. "Endogenous financial innovation and the demand for money," Working Paper 92-03, Federal Reserve Bank of Richmond.
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  22. Eckstein, Z. & Leiderman, L., 1991. "Seignorage and the Welfare Cost of Inflation; Evidence from an Intertemporal Model of Money and Consumption," Papers 7-91, Tel Aviv.
  23. Blackburn, Keith & Sola, Martin, 1996. "Market Fundamentals versus Speculative Bubbles: A New Test Applied to the German Hyperinflation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(4), pages 303-17, October.
  24. Nichols, Donald A, 1974. "Some Principles of Inflationary Finance," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 423-30, Part I, M.
  25. Beatrix Paal, 2000. "Destabilizing effects of a successful stabilization: a forward-looking explanation of the second Hungarian hyperinflation," Economic Theory, Springer, vol. 15(3), pages 599-630.
  26. Mondino, Guillermo & Sturzenegger, Federico & Tommasi, Mariano, 1996. "Recurrent High Inflation and Stabilization: A Dynamic Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 981-96, November.
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