A theoretical model of the dynamics of hyperinflation

Un modèle théorique de la dynamique de l'hyperinflation

Valérie Lelièvre ()
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Valérie Lelièvre: BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper presents a theoretical model whose purpose is to explain the dynamics of hyperinflation. It is a reformulation of Cagan's 1956 model in which hypothesis are added to explain the reality of hyperinflationist process in Latin America. The model includes a government budget constraint and the money demand equation of Cagan's model. Three new hypothesis are introduced: expectations are rational, the money demand is unstable and money supply is endogeneous. Dynamics hyperinflation's origins are situated on real balance market: fiscal deficit financed by printing money and inflation taxes launch hyperinflation by acting on supply and demand on real balance. "Budgetary shocks" conduce to a shifting of demand and equilibrium on real cash market which accelerate and emphasize hyperinflation's dynamics.

Date: 1995
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Published in Revue Française d'Economie, 1995, 10 (1), pp.115-133. ⟨10.3406/rfeco.1995.974⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03993219

DOI: 10.3406/rfeco.1995.974

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