Hyperinflation and Stabilization: Cagan Revisited

Marcus Miller and Lei Zhang ()

No 1513, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Keywords: Fiscal Stabilization; Hyperinflation; Seigniorage; Stochastic Deficits (search for similar items in EconPapers)
JEL-codes: E31 E62 (search for similar items in EconPapers)
Date: 1996-11
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1513 (application/pdf)

Related works:
Journal Article: Hyperinflation and Stabilisation: Cagan Revisited (1997)
Working Paper: Hyperinflation and stabilization: Cagan revisited (1995)
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:cpr:ceprdp:1513

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1513

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().