The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money

Alexandre Sokic

German Economic Review, 2012, vol. 13, issue 2, 142-160

Abstract: This paper emerges from the failure of the traditional models of hyperinflation with perfect foresight. Insights from two standard optimizing monetary settings and economic reasoning from case studies of extreme hyperinflation episodes provide relevant requirements for the specification of the demand for money during hyperinflation. The paper demonstrates that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. The essentiality of money provides some depth of explanation of the reasons why the popular semi-log schedule of the demand for money is not appropriate for analysing monetary hyperinflation with perfect foresight. The paper proposes a simple test of money essentiality for the appropriate specification of the demand-for-money equation in empirical studies of hyperinflation.

Keywords: Hyperinflation; inflation tax; money essentiality; demand for money (search for similar items in EconPapers)
Date: 2012
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Related works:
Journal Article: The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money (2012)
Working Paper: The monetary analysis of hyperinflation and the appropriate specification of the demand for money (2010)
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DOI: 10.1111/j.1468-0475.2011.00543.x

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