Tải bản đầy đủ
▼FIGURE 16.4 The Velocity of M2, 1959–2011

▼FIGURE 16.4 The Velocity of M2, 1959–2011

Tải bản đầy đủ

16.4 INFLATION AND THE VELOCITY OF MONEY (3 of 3)


Growth version of the quantity equation
An equation that links the growth rates of money, velocity, prices, and real output.





growth rate of money + growth rate of velocity
= growth rate of prices + growth rate of real output

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved

16.5 HYPERINFLATION (1 of 2)



Hyperinflation
An inflation rate exceeding 50 percent per month.
TABLE 16.3 Hyperinflations and Velocity
Country

Dates

Monthly Rate

Monthly Rate of Money Growth

of Inflation
Greece

November 1943 to

Approximate
Increase in Velocity

365%

220%

14.00

19,800%

12,200%

333.00

57%

49%

3.70

November 1944
Hungary

August 1945 to July 1946

Russia

December 1921 to January 1924

SOURCE: Adapted from Phillip Cagan, “The Monetary Dynamics of Hyperinflation,” in Studies in the Quantity Theory of Money, ed. Milton Friedman (Chicago: University of Chocago Press, 1956), 26

TABLE 16.4 Hyperinflation in the 1980s

Country

Year

Yearly Rate of Inflation

Monthly Rate of Inflation

Monthly Money
Growth Rate

Bolivia

1985

1,152,200%

118%

91%

Argentina

1989

302,200

95

93

Nicaragua

1988

975,500

115

66

SOURCE: International Financial Statistics, International Monetary Fund.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved

16.5 HYPERINFLATION (2 of 2)

How Budget Deficits Lead to Hyperinflation


Seignorage
Revenue raised from money creation.

Government deficit = new borrowing from the public + new money created



Monetarists
Economists who emphasize the role that the supply of money plays in determining nominal income and inflation.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved

APPLICATION 3



THE END OF HYPERINFLATIONS



APPLYING THE CONCEPTS #3: Why do hyperinflations end suddenly?



In a classic study of four major hyperinflations, Nobel Laureate Thomas J. Sargent noticed that they ended rather quickly and the ends all followed similar
patterns. He studied the hyperinflations after World War I in Germany, Austria, Hungary, and Poland, some of the most dramatic in world history. In each case, the
hyperinflation ended with the creation of a central bank and change in the way that governments were financed. No longer would the country rely on its central
bank to finance its debt. Instead, debt was sold to private parties who would value the debt based on the ability of the government to meet interest and principal
payments from taxes. Once the governments made these reforms, there was an abrupt end to the hyperinflations and an actual increase in the demand for
money in real terms by the private sector.



Sargent said hyperinflations were ultimately caused by fiscal policy that was financed by money creation and not taxes. He also suggested that inflation could be
tamed rather easily once fiscal reforms were made. While most economists agree with Sargent’s views on the ends of hyperinflation, there is less agreement that
moderate inflations can be ended simply by changing fiscal regimes and not enduring a recession.

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved

KEY TERMS

Expectations of inflation
Expectations Phillips curve
Growth version of the quantity equation
Hyperinflation
Monetarists
Money illusion
Nominal wages
Quantity equation
Rational expectations
Real wages
Seignorage
Velocity of money

Copyright © 2015, 2012, 2009 Pearson Education, Inc. All Rights Reserved