UNSPECIFIED. (1997) Hyperinflation and stabilisation: Cagan revisited. ECONOMIC JOURNAL, 107 (441). pp. 441-454. ISSN 0013-0133

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Abstract

Using a variant of the Cagan model with rational expectations, this paper shows that expected stabilisation can result in a budget deficit in excess of the maximum inflation tax. A cap on the deficit dampens inflation expectations and raises real balances thus increasing the yield of the inflation tax for any given rate of inflation. This study extends the work of Drazen and Helpman (1990) by including a stochastic budgetary process and using option pricing theory. It uses parameter values of the semi-elasticity of demand for money to provide estimates of the maximum viable real deficit.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	ECONOMIC JOURNAL
Publisher:	BLACKWELL PUBL LTD
ISSN:	0013-0133
Date:	March 1997
Volume:	107
Number:	441
Number of Pages:	14
Page Range:	pp. 441-454
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/17912

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