The monetary model of hyperinflation: limits of the model validity

Alexandre Sokic

No 38, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group

Abstract: The Cagan monetary model of hyperinflation has a relatively simple structure and a rich set of solutions. However, the wealth of possible solutions of this model does not constitute an asset for it. The introduction of rational expectations into the model was often at the origin of these validity problems as shown in Buiter (1987) or Kiguel (1989). Then, this model has usually been associated with the adaptive expectations assumption in the literature. In the same spirit Evans (1995) stressed that the assumption of adaptive expectations is a sufficient condition to ensure its validity. This articles aims at highlighting the strict association met in the literature between the assumption of adaptive expectations and the correct running of the monetary model of hyperinflation. A complete resolution of the model under the assumption of adaptive expectations is carried out. This approach completes the analyses made in Bruno & Fisher (1987, 1990), taken up again in Blanchard and Fischer (1990) and still recently in Walsh (2003). The aim is to show that the way inflationary expectations are formed is not crucial for the validity of the model. Rather crucial is the adjustment lag of real cash balances to their desired level

Keywords: hyperinflation; seigniorage; hyperinflationary bubbles (search for similar items in EconPapers)
JEL-codes: E31 E41 (search for similar items in EconPapers)
Date: 2007-02-02
New Economics Papers: this item is included in nep-mac and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repec.org/mmf2006/up.17792.1144250842.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mmf:mmfc06:38

Access Statistics for this paper

More papers in Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group
Bibliographic data for series maintained by Christopher F. Baum ().