Virtual Deficits and the Patinkin Effect

Eliana Cardoso ()

IMF Staff Papers, 1998, vol. 45, issue 4, 619-646

Abstract: The paper develops a model of inflationary finance that defines the fiscal deficit as a function of the virtual deficit--one that would be observed at zero inflation. It studies the negative relationship between the inflation rate and real government expenditures--the Patinkin effect--a powerful stabilizer during megainflation. The model outperforms other seigniorage models in explaining the persistence of four-digit inflation rates that never explode into an open hyperinflation. It also explains how apparently expansionist fiscal policies end in measured real deficits that are small and compatible with the small amount of seigniorage that can be collected at high inflation rates.

JEL-codes: E10 E31 E58 E62 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (19)

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