Abstract
This chapter provides an overview of the conceptual and theoretical motivation behind the origins, mechanics and resolution of hyperinflations. It relates various economic models into a framework that can be used to understand hyperinflations. Finally, this chapter highlights the importance of inflationary expectations and seigniorage in the hyperinflation process.
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Notes
- 1.
Moreover, real income is excluded from Cagan’s (1956) money demand function under hyperinflation. This leads to omitted variable bias in his estimation as pointed out by subsequent authors.
- 2.
Before discussing his results, Cagan (1956) explicitly noted some of the limitations of his dataset and findings including (1) data reliability on his estimates for deposits and inclusion of counterfeit money; and (2) omitted variables such as use of foreign bank notes, circulation of multiple currencies and exclusion of real income in his real money balances equation.
- 3.
Using continuous discounting growth rates (or 34,532 per cent when using simple growth rates)
- 4.
Both policy options are in line with real bills doctrine (Sargent and Wallace 1982).
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McIndoe-Calder, T., Bedi, T., Mercado, R. (2019). Economics of Hyperinflation. In: Hyperinflation in Zimbabwe. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-31015-8_4
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DOI: https://doi.org/10.1007/978-3-030-31015-8_4
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