Chronic Inflation and Hyperinflation

Fernando Barbosa

Chapter Chapter 3 in Exploring the Mechanics of Chronic Inflation and Hyperinflation, 2017, pp 29-42 from Springer

Abstract: Abstract The typical models that try to explain hyperinflation contain three basic ingredients: (1) the portfolio allocation decision with the specification of a money demand equation in which the expected inflation rate is a key argument; (2) a mechanism that describes the expectations formation; and (3) an equation representing the government deficit financing through money issuing. Cagan (1956) took into account the first two ingredients, but considered money as exogenous, while Kalecki (1962) hyperinflation model contained the three ingredients. The current economic literature follows this theoretical framework and has several contributions that analyze the properties of the hyperinflation models. Evans and Yarrow (1981) and Buiter (1987), among others, state that rational models are unable to produce hyperinflationary processes, although they are able to generate hyperdeflationary processes. Kiguel (1989) based on the hypothesis that prices and wages are not flexible, introduced in his model the assumption that the money market does not adjust instantaneously, but according to a partial adjustment mechanism. Having this additional hypothesis, the model with rational expectations is able to generate hyperinflationary processes to some values of the structural parameters of the model.

Keywords: Monetary Policy; Hopf Bifurcation; Inflation Rate; Money Market; Phillips Curve (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-3-319-44512-0_3

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DOI: 10.1007/978-3-319-44512-0_3

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