Hyperinflation and Stabilization: Cagan Revisited
Using a variant of the Cagan model with rational expectations, this paper shows that expected stabilization can result in a budget deficit in excess of the maximum inflation tax. A cap on the deficit dampens inflation expectations and raises real balances, thus increasing the yield of the inflation tax for any given rate of inflation. This study extends the work of Drazen and Helpman (1990) by including a stochastic budgetary process and using option pricing theory. It uses parameter values of the semi-elasticity of demand for money to provide estimates of the maximum viable real deficit.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
| Length: | |
| Date of creation: | Nov 1996 |
| Date of revision: | |
| Handle: | RePEc:cpr:ceprdp:1513 |
| Contact details of provider: | Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ. Phone: 44 - 20 - 7183 8801 Fax: 44 - 20 - 7183 8820
|
| Order Information: | Email: |
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.:
- Loungani, Prakash & Sheets, Nathan, 1997.
"Central Bank Independence, Inflation, and Growth in Transition Economies,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 29(3), pages 381-99, August.
- Prakash Loungani & Nathan Sheets, 1995. "Central bank independence, inflation and growth in transition economies," International Finance Discussion Papers 519, Board of Governors of the Federal Reserve System (U.S.).
- Miller, Marcus & Zhang, Lei, 1994.
"Optimal Target Zones: How an Exchange Rate Mechanism Can Improve Upon Discretion,"
CEPR Discussion Papers
1031, C.E.P.R. Discussion Papers.
- Miller, Marcus & Zhang, Lei, 1996. "Optimal target zones: How an exchange rate mechanism can improve upon discretion," Journal of Economic Dynamics and Control, Elsevier, vol. 20(9-10), pages 1641-1660.
- Davies, Gareth & Vines, David, 1995. "Equilibrium Currency Crises: Are Multiple Equilibria Self-fulfilling or History Dependent?," CEPR Discussion Papers 1239, C.E.P.R. Discussion Papers.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, 01-2013.
- Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, May.
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1513. 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: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.