Explosive Hyperinflation, Inflation-Tax Curve, and Modeling the Use of Money

María-José Gutiérrez and Jesús Vázquez

Journal of Institutional and Theoretical Economics (JITE), 2004, vol. 160, issue 2, 311-326

Abstract: This paper analyzes the existence of an inflation-tax Laffer curve (ITLC) in the context of two optimizing monetary models. Explosive hyperinflation rules out the presence of an ITLC. In a cash-in-advance economy, this paper shows that explosive hyperinflation is possible and thus an ITLC is ruled out whenever the relative risk aversion parameter is greater than one. In a money-in-the-utility-function model, it is shown that (i) an ITLC is also ruled out and (ii) explosive hyperinflations are more likely when the transactions role of money is more important.

JEL-codes: E31 E41 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (9)

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