Exploring the Mechanics of Chronic Inflation and by Fernando de Holanda Barbosa

By Fernando de Holanda Barbosa

This publication provides a theoretical framework to give an explanation for persistent inflation and hyperinflation. The roots of those phenomenon are a economic financial regime during which cash concerns finance the general public deficit. power inflation is modeled through the use of either the previous and the recent Keynesian version, with a distinct coverage rule. rather than utilizing the Taylor rule, the crucial financial institution coverage rule states that cash is issued to finance the general public deficit. The continual inflation versions consider the truth that indexation mechanisms regulate costs and wages, yielding the inertial element of inflation. The dynamics of those types should be very risky below parameter adjustments or shocks that hit the financial system. the former hyperinflation versions surveyed during this booklet try and clarify hyperinflation as a bubble phenomenon simply because they suppose a continuing genuine deficit financed via cash. The mechanics of hyperinflation versions during this e-book explains hyperinflation through a monetary trouble, characterised by means of an expanding economic deficit. This financial challenge yields an intertemporal price range constraint that's not sustainable. The research of the pathology of hyperinflation makes use of a similar instruments hired to appreciate the pathologies of public debt and exterior debt crises. The hyperinflation version permits a taxonomy of hyperinflations, particularly bubble, vulnerable and robust, that may be demonstrated with the inflation tax profit curve.

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Most estimates of the demand for money income elasticity suggest that this parameter is close to one [see, for example, Lucas 2000]. The estimates of the demand for money interest rate semi-elasticity are not so clear-cut. 2 shows semi-elasticity estimates for the German hyperinflation made by several economists based on monthly data. 46. For example, the estimates of Casella (1989) and Michael et al. 70, respectively. 2 Interest rate semi-elasticity: German hyperinflation Author Cagan (1956) Barro (1970) Frenkel (1977) Sargent (1977) Goodfriend (1982) Burmeister and Wall (1987) Christiano (1987) Webb (1989) Casella (1989) Taylor (1991) Engsted (1993) Imrohoroglu (1993) Michael et al.

The market for goods and services is in equilibrium, so demand for goods and services is equal to supply: ct D y. The model solution is obtained by multiplying both sides of the Euler equation by the stock of money at period t, and by taking into account the behavior of the government and the equilibrium in the market for goods and services. 6) 2 Speculative Hyperinflation Bubbles A(m) B(m) 53 A(m) B(m) A(m) A(m) B(m) B(m) m m m0 m m Fig. m/ > 0. m/, introduced by Brock (1975). 1 shows the steady state equilibrium of the model in two situations.

46. For example, the estimates of Casella (1989) and Michael et al. 70, respectively. 2 Interest rate semi-elasticity: German hyperinflation Author Cagan (1956) Barro (1970) Frenkel (1977) Sargent (1977) Goodfriend (1982) Burmeister and Wall (1987) Christiano (1987) Webb (1989) Casella (1989) Taylor (1991) Engsted (1993) Imrohoroglu (1993) Michael et al. 0 rate that maximizes inflation tax, which is equal to the inverse of the semi-elasticity. This information makes it easier to interpret the semi-elasticity.

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