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A DIFFICULTY WITH MONETARIST MODELS OF HYPERINFLATION
Author(s) -
Jacobs RODNEY L.
Publication year - 1975
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1975.tb00253.x
Subject(s) - economics , hyperinflation , moneyness , monetarism , econometrics , variable (mathematics) , stock (firearms) , money supply , demand for money , mathematical economics , keynesian economics , monetary policy , mathematics , mechanical engineering , mathematical analysis , engineering
The Cagan, Barro, and Allais analyses of hyperinflation have been shown to be questionable. Their impressive empirical results are a direct result of the method used to solve their models. Their solution does not depend on the input forcing function (the rate of change of the money stock) of their differential equation systems but expresses one dependent variable, real money balances, as a function of another dependent variable, the rate of change of prices. As a result, price changes which are unrelated to changes in the money stock acting through the dynamic structure of the model will incorrectly yield a good fit of the data.