Hyperinflation Pitfalls: Fundamentals Versus Bubbles
In the set-up of our hyperinflation model, in a joint paper with Sallum (Barbosa et al. 2006, thereafter BCS), we were very careful to avoid some traps that have plagued the literature on hyperinflation. In our model, hyperinflation is caused by fundamentals not by bubbles. We showed that a hyperinflation path would not be a competitive equilibrium outcome if the public deficit to be financed by issuing money were constant.
KeywordsBudget Constraint Equilibrium Solution Competitive Equilibrium Transversality Condition Money Demand
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