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A Fiscal Theory of Hyperdeflations? Some Surprising Monetarist Arithmetic

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  • Buiter, Willem H

Abstract

For the range of "small" government deficits for which two stationary solutions exist, an increase in the deficit reduces the long-run rate of inflation if the locally-stable (high inflation) stationary equilibrium is chosen, increases it if the locally- unstable (low inflation) equilibrium is chosen. Explosive, unstable behavior always involves a steadily increasing negative rate of inflation, i.e. a "hyperdeflation." There always exist deficits so large that stationary solutions do not exist. Behavior then is unstable and explosive: hyperinflations are ruled out and hyperdeflations must result. Empirical studies of hyperinflations should no longer use the rational-expectations version of the Sargent-Wallace model as a theoretical backdrop. Copyright 1987 by Royal Economic Society.

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  • Buiter, Willem H, 1987. "A Fiscal Theory of Hyperdeflations? Some Surprising Monetarist Arithmetic," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 111-118, March.
    • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:1:p:111-18
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    Cited by:

    1. Fernando de Holanda Barbosa, 2017. "Hyperinflation: Inflation Tax and Economic Policy Regime," SpringerBriefs in Economics, in: Exploring the Mechanics of Chronic Inflation and Hyperinflation, chapter 0, pages 61-75, Springer.
    2. Willem Buiter, 2000. "The Fallacy of the Fiscal Theory of the Price Level, Again," CESifo Working Paper Series 303, CESifo.
    3. Alexandre Sokic, 2008. "Monetary Hyperinflations, Speculative Hyperinflations and Modeling the Use of Money," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 51-70, August.
    4. Alexandre Sokic, 2008. "Modelling the transaction role of money and the essentiality of money in a hyperinflation context," Working Papers of BETA 2008-12, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Sokic Alexandre, 2012. "The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money," German Economic Review, De Gruyter, vol. 13(2), pages 142-160, May.
    6. Willem H. Buiter, 1999. "The Fallacy of the Fiscal Theory of the Price Level," NBER Working Papers 7302, National Bureau of Economic Research, Inc.
    7. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 205-220, Autumn.
    8. Ismet GOCER & Mehmet MERCAN, 2016. "Which country after Greece? Sustainability of budget deficits in selected EU countries: A panel cointegration analysis with multiple structural breaks under cross-section dependence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(608), A), pages 205-220, Autumn.
    9. Dai, Meixing, 1998. "Les effets stabilisants de la zone-cible du taux d’inflation [The stabilising effects of inflation-targeting zone]," MPRA Paper 13856, University Library of Munich, Germany, revised Nov 2001.
    10. María-José Gutiérrez & Jesús Vázquez, 2004. "Explosive Hyperinflation, Inflation-Tax Curve, and Modeling the Use of Money," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(2), pages 311-326, June.
    11. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    12. Alexandre Sokic, 2008. "Theoretical support for a new class of demand for real cash balances in explosive hyperinflations," Working Papers of BETA 2008-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    13. Gutiérrez Huerta, María José & Vázquez Pérez, Jesús, 2002. "Explosive Hyperinflation, Inflation Tax Laffer Curve and Modelling the use of Money," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    14. Alexandre Sokic, 2007. "Monetary hyperinflations and money essentiality," Working Papers of BETA 2007-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    15. Vazquez, Jesus, 1998. "How high can inflation get during hyperinflation? A transaction cost demand for money approach," European Journal of Political Economy, Elsevier, vol. 14(3), pages 433-451, August.
    16. Petrovic, Pavle & Bogetic, Zeljko & Vujosevic, Zorica, 1999. "The Yugoslav Hyperinflation of 1992-1994: Causes, Dynamics, and Money Supply Process," Journal of Comparative Economics, Elsevier, vol. 27(2), pages 335-353, June.

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