Can We Rule Out Speculative Hyperinflations in Maximising Models? Yes, We Can

William Oliver Coleman ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: A critique is advanced of the contention of Obstfeld and Rogoff (1983) that in a fiat money regime, 'speculative hyperinflations can be excluded only through severe restrictions' on preferences. It is maintained here, in contrast, that no more than the infinity of the marginal utility of real balances at zero real balances is sufficient to rule out speculative hyperinflations. What Obstfeld and Rogoff have successfully drawn attention to is the theoretical possibility of money having strictly zero purchasing power. But the phenomenon of zero purchasing power has no explanatory power for historically observed hyperinflations, or any historically observed modern economy.

JEL-codes: E31 E41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008-01
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