Orthodox models of high inflation: a critical analysis

Luiz Antonio de Oliveira Lima ()

Brazilian Journal of Political Economy, 1996, vol. 16, issue 4, 497-514

Abstract: This paper argues that orthodox models of high inflation for developingcountries, based on seminal Cagan’s model of hyperinflation, present some weak pointsby ignoring the complexity brought to the economy by high inflation, as well as byassuming that economic agents can dwell in this situation because they are endowed withan “unbounded rationality” to take their decisions. The paper argues too, that in order tounderstand this process and to suggest proper policies, it is necessary to recognize that adesinflationary process requires gradual policies that allow economic agents to adjust theirbehavior to the new circumstances that are brought about by these policies. The hypothesisto make about this behavior is that is characterized by a “bounded rationality”. JEL Classification: E31; E13.

Keywords: Inflation; hyperinflation; stabilization (search for similar items in EconPapers)
Date: 1996
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