Inflation and Monetary Reform

Pierre-Richard Agénor and Anna Lennblad

No 1992/060, IMF Working Papers from International Monetary Fund

Abstract: The introduction of a new currency has often occurred as part of a program to fight hyperinflation. In this context, non-uniform conversion rates for different types of assets and liabilities have been used as a means of reducing an initial “excess” stock of liquidity. The paper examines the anticipatory dynamics associated with such reforms. The analysis suggests that monetary reforms of this type have a deflationary effect upon announcement as well as during the transition period. Under uncertainty about the reform date, the direction of the initial jump in prices upon announcement is a priori ambiguous. Upon implementation, a monetary reform leads to a downward jump in prices.

Keywords: WP; foreign currency; monetary unit; exchange rate; foreign currency holding; parallel exchange rate; open economy; capital gain; Currencies; Exchange rates; Monetary base; Currency markets (search for similar items in EconPapers)
Pages: 34
Date: 1992-08-01
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