 Competitive Equilibrium Hyperinflation Under Rational ExpectationsChapter Chapter 7 in Exploring the Mechanics of Chronic Inflation and Hyperinflation, 2017, pp 77-91 from Springer Abstract: Abstract Cagan’s (1956) seminal work provided the first attempt to explain the hyperinflation phenomenon. That essay was so influential that small variations of Cagan’s model can be found in several textbooks, such as Blanchard and Fischer (1989), Obstfeld and Rogoff (1996) and Romer (2001).Cagan’s model is capable of generating hyperinflation under two types of expectation mechanisms: adaptive and rational. Both are unsatisfactory because adaptive expectations yield systematic forecasting errors, while rational expectations need to be combined with a partial adjustment mechanism in the monetary market. Moreover, both mechanisms require violation of the government intertemporal budget constraint to generate a hyperinflation. That is, in Cagan’s model hyperinflation is not a competitive equilibrium outcome. Keywords: Rational Expectation; Competitive Equilibrium; Money Demand; Nominal Interest Rate; Fiscal Deficit (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-3-319-44512-0_7 Ordering information: This item can be ordered from DOI: 10.1007/978-3-319-44512-0_7 Access Statistics for this chapter More chapters in SpringerBriefs in Economics from Springer |
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