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A theoretical model of the dynamics of hyperinflation
[Un modèle théorique de la dynamique de l'hyperinflation]

Author

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  • Valérie Lelièvre

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper presents a theoretical model whose purpose is to explain the dynamics of hyperinflation. It is a reformulation of Cagan's 1956 model in which hypothesis are added to explain the reality of hyperinflationist process in Latin America. The model includes a government budget constraint and the money demand equation of Cagan's model. Three new hypothesis are introduced: expectations are rational, the money demand is unstable and money supply is endogeneous. Dynamics hyperinflation's origins are situated on real balance market: fiscal deficit financed by printing money and inflation taxes launch hyperinflation by acting on supply and demand on real balance. "Budgetary shocks" conduce to a shifting of demand and equilibrium on real cash market which accelerate and emphasize hyperinflation's dynamics.

Suggested Citation

  • Valérie Lelièvre, 1995. "A theoretical model of the dynamics of hyperinflation [Un modèle théorique de la dynamique de l'hyperinflation]," Post-Print hal-03993219, HAL.
    • Handle: RePEc:hal:journl:hal-03993219
    DOI: 10.3406/rfeco.1995.974
    Note: View the original document on HAL open archive server: https://hal.univ-lorraine.fr/hal-03993219
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