The monetary analysis of hyperinflation and the appropriate specification of the demand for money

The paper emerges from the failure of the traditional models of hyperinflation with rational expectations or perfect foresight. Using the insights from two standard optimizing monetary settings the paper shows that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. We show that the popular semilogarithmic form of the demand for money is not appropriate to analyse monetary hyperinflation with perfect foresight. We propose a simple test of money essentiality for the appropriate specification of the demand for money equation in empirical studies of hyperinflation.monetary hyperinflation, inflation tax, money essentiality

The monetary model of hyperinflation and the adaptive expectations: limits of the association and model validity.

This article highlights the strict association met in the literature between the adaptive expectations assumption and the correct running of the monetary model of hyperinflation. A complete resolution of the model is carried out under the adaptive expectations hypothesis. It is shown that the assumption of adaptive expectations is not sufficient to ensure the validity of the model for the explanation of monetary hyperinflation. This result raises the question of the field of validity of this model already posed by the introduction of rational expectations. The possibility of development of self-generating hyperinflationary bubbles strengthens the relevance of this question.hyperinflation, seigniorage, hyperinflationary bubbles.

Theoretical support for a new class of demand for real cash balances in explosive hyperinflations.

This paper aims at providing some new theoretical support for money demand functions in monetary hyperinflation analysis given the well known failure of Cagan based inflationary finance models to produce explosive hyperinflation. An analytical approach is used to characterize the agents’ preferences which are compatible with monetary hyperinflation. In the context of a MIUF model, we show that the possibility of explosive hyperinflation paths depends on a sufficient level of money essentiality in the sense of Scheinkman (1980) which is conveyed by the agents’ preferences. This result emerges without any ad-hoc assumption implying the inclusion of some friction in the adjustment of some nominal variable. It suggests that monetary hyperinflation analysis under perfect foresight requires abandoning the Cagan money demand and adopting a demand for money respecting money essentiality. Theoretical support is brought to inelastic functional forms of money demand and specifically to the double-log schedule.money demand, monetary hyperinflation, inflation tax, money essentiality.

Modelling the transaction role of money and the essentiality of money in a hyperinflation context.

This paper uses an analytical approach and the precise definition of money essentiality given by Scheinkman (1980) with the aim to establish a formal theoretical link between the possibility of hyperinflationary paths and the concept of money essentiality. In this respect the paper contributes to the understanding of the well known failure of Cagan based inflationary finance models to produce explosive hyperinflation. We consider two standard optimizing monetary models representing alternative ways of modelling the transaction role of money. The paper considers a money-in-the-utility-function model and a cash-in-advance model where representative agent’s preferences are represented by general utility functions. We show that modelling monetary hyperinflation with perfect foresight is closely linked to the concept of money essentiality as defined by Scheinkman (1980). The possibility of explosive monetary hyperinflation in a perfect foresight inflationary finance model always relies on a sufficient level of money essentiality. The main contribution of this paper is to show that, whether in a cash-in-advance or in a money-in-the-utility-function framework, this sufficient level of money essentiality does not depend on the specific way, cash-in-advance or moneyin- the-utility-function, of modelling the role of money as a medium of exchange.monetary hyperinflation, inflation tax, money essentiality.

Monetary hyperinflations and money essentiality.

This paper aims at drawing new guidelines for investigation of monetary hyperinflation analysis. We propose a MIUF optimizing model and show that monetary hyperinflation can occur as a perfect foresight competitive equilibrium path only when money is essential in the sense of Scheinkman (1980). This result emerges without any ad-hoc assumption implying the inclusion of friction in the adjustment of some nominal variable. It suggests that monetary hyperinflation analysis under perfect foresight requires abandoning the Cagan money demand and adopting a demand for money respecting money essentiality.monetary hyperinflation, seigniorage, inflation tax, money essentiality.

Monetary hyperinflations, speculative hyperinflations and modelling the use of money.

The aim of this paper is to clarify the failure of the Cagan model with perfect foresight and to draw new axes for investigation of monetary hyperinflation analysis. Firstly, the paper evaluates the relevancy of the Cagan ad-hoc model with perfect foresight as a theoretical framework for investigating hyperinflation processes. We show that deficits can never generate monetary hyperinflations, confirming the results of Buiter (1987). The only hyperinflationary processes that can occur are speculative hyperinflations. Secondly, the paper assesses consistency of hyperinflationary paths with the optimizing behaviour of representative agents within two perfect foresight inflationary finance frameworks modelling the use of money as a medium of exchange. In the context of a money-in-the-utility framework, the results obtained in the Cagan ad-hoc model with perfect foresight are founded and confirmed. This implies restricting the use of the latter model only to speculative hyperinflations analysis. In the context of a transaction costs based model, we show that deficits can generate monetary hyperinflations. Moreover, speculative hyperinflations remain possible. This result is in sharp contrast to that of the money-in-the-utility framework and implies a demand for money different from the Cagan form.

Diameter 3

Let $\mathcal{M}$ be the class of finite metric spaces with nonzero distances in the set $\{1,2,3\}$ omitting triangles of the form $(2,3,3)$ and $(3,3,3)$. We prove that the class of linearly ordered structures from $\mathcal{M}$ satisfies the Ramsey property

The monetary analysis of hyperinflation and the appropriate specification of the demand for money

The paper emerges from the failure of the traditional models of hyperinflation with rational expectations or perfect foresight. Using the insights from two standard optimizing monetary settings the paper shows that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. We show that the popular semilogarithmic form of the demand for money is not appropriate to analyse monetary hyperinflation with perfect foresight. We propose a simple test of money essentiality for the appropriate specification of the demand for money equation in empirical studies of hyperinflation