Speculative Hyperinflations: when Can We Rule Them Out?

46 Pages Posted: 8 May 2006

Date Written: April 11, 2006

Abstract

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.

Keywords: Hyperinflation, Fiscal-Monetary Reform, Multiple Equilibria, Hysteresis

JEL Classification: E31, E41, E63

Suggested Citation

Arce, Oscar, Speculative Hyperinflations: when Can We Rule Them Out? (April 11, 2006). Banco de Espana Research Paper No. WP-0607. Available at SSRN: https://ssrn.com/abstract=901152 or http://dx.doi.org/10.2139/ssrn.901152

Oscar Arce (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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