h Edition The Ends of Four Big Inflations

Transcription

1 Sharif University of Technology Graduate School of Management and Economics The Ends of Four Big Inflations Sargent (1981) Navid Raeesi Fall 2013 Page 1

2 Introduction In the last fifteen years, many western economies have experienced persistent and growing rates of inflation. The momentum view Inflation has a stubborn, self-sustaining momentum The rational expectations view Inflation only seems to have a momentum of its own [the so called rational expectationists ] are optimistic that inflation can be wiped out with little pain if only the government makes credible its determination to do so. But neither history nor reason tempt one to bet their way (Paul Samuelson, Newsweek, April 28, 1980) Isolated actions vs. policy regime Page 2

3 Introduction Historical experience of Austria, Hungray, Germany, and Poland in the 1920s as laboratories for the study of policy regime change. Common features of the four big inflations: The nature of the fiscal policy regime in effect during each of the hyperinflations (budget deficits in current account) The nature of the deliberate and drastic fiscal and monetary measures taken to end the hyperinflations The immediacy with which the price level and foreign exchange suddenly stabilized The rapid rise in the high powered money supply in the months and years after the rapid inflation has ended Page 3

4 Wholesale Prices in Austria, Hungray, Poland, and Germany Page 4

5 The Gold Standard The monetary system in the 1920s: The gold standard Backed vs. unbacked money It is not lack of gold but the absence of other internal adjustments which prevents the leading European countries from returning to prewar gold standard. Most of them have plenty of gold for the purpose as soon as other conditions favorable to the restoration of a gold standard have returned (Keynes, The United States and Gold) The value of government debt The role of the private agent s expectations The policy regime Page 5

6 Austria: Austrian Budgets, (Millions of paper Crowns) Total Note Circulation of Austrian Crowns (Thousands of Crowns) Page 6

7 Austria: Retail Price ( ) Exchange Rate, Austrian Crown per U.S. Dollar Page 7

8 Austria: Austrian Budgets, (Millions of Crowns) Total Note Circulation of Austrian Crowns (Thousands of Crowns) Page 8

9 Austria: Austrian Budgets, (Millions of Crowns) Austrian Budget, (Millions of Schillings) Page 9

10 Austria: Total Note Circulation of Austrian Crowns (Thousands of Crowns) Austrian National Bank Balance sheet (Millions of Crowns) Page 10

11 Austria: Number of Employment in Receipt of Reilif Page 11

12 Conclusion The essential measures in ending hyperinflation in Germany, Austria, Hungray, and Poland: Creation of an independent central bank A simultaneous alternation in the fiscal policy regime The cause of hyperinflation: Growth of fiat currency which was unbacked. The change that ended the hyperinflation: Change in policy regime Page 12

13 Steve Hanke and Iran Hyperinflation Page 13

14 Steve Hanke and Iran Hyperinflation Page 14

15 Thanks for Your Attention! Principles Macroeconomic of Econometrics, Research 4tGroup h Edition The Four Big Inflation Page 16