Can the Release of a Monetary Overhang Trigger Hyperinflation?

Author/Editor:

Kent Osband ; Shoukang Lin

Publication Date:

March 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1992/024

Subject:

Bonds Financial institutions Inflation Labor Prices Real wages Wage adjustments Wages

English

Publication Date:

March 1, 1992

ISBN/ISSN:

9781451920956/1018-5941

Stock No:

WPIEA0241992

Pages:

36

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