Can the Release of a Monetary Overhang Trigger Hyperinflation?
36 Pages Posted: 15 Feb 2006
Date Written: March 1992
It is widely feared that, once prices are decontrolled in the formerly centrally-planned economies, households` release of previously accumulated money will trigger a hyperinflation. This paper finds, instead, that whether a country`s fiscal, monetary, and labor market policies are destabilizing typically does not depend on the money stock. However, the release of a monetary overhang can precipitate a large initial real wage shock. To the extent such a shock is not feasible politically, there is a motive for monetary reform, which must be weighed against the cost of reduced public confidence in money.
JEL Classification: E31, E63, P22
Suggested Citation: Suggested Citation