Can the Release of a Monetary Overhang Trigger Hyperinflation?

Kent Osband and Shoukang Lin

No 1992/024, IMF Working Papers from International Monetary Fund

Abstract: It is widely feared that, once prices are decontrolled in the formerly centrally–planned economies, households’ release of previously accumulated money will trigger a hyperinflation. This paper finds, instead, that whether a country’s fiscal, monetary, and labor market policies are destabilizing typically does not depend on the money stock. However, the release of a monetary overhang can precipitate a large initial real wage shock. To the extent such a shock is not feasible politically, there is a motive for monetary reform, which must be weighed against the cost of reduced public confidence in money.

Keywords: WP; inflation rate; money stock; inflationary spiral; price surge; bond holding; price liberalization; decontrol price balance; Real wages; Wages; Inflation; Bonds; Wage adjustments; Eastern Europe; Global (search for similar items in EconPapers)
Pages: 36
Date: 1992-03-01
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