Hyperinflation and stabilization: Cagan revisited
In this paper Cagan's analysis of hyperinflations is adapted to look at situations where the deficits to be financed by money creation are large and variable, but fiscal stabilisation is expected--features found in some of the republics of the Former Soviet Union soon after independence. The impact of various stabilisation policies on real balances and inflation expectations is studied, assuming expectations are rational and deficits follow a geometric Brownian motion until the stabilisation takes place. For a modified form of Cagan's demand function we are able to obtain explicit solutions using Ito's Lemma; these are calibrated to give numerical estimates of the effects of expected fiscal stabilisation.
|Date of creation:||1995|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
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 381-399, 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.).
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
- 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.
- 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.
- 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.
- Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1. Full references (including those not matched with items on IDEAS)