Monetarist theories hold that hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services. The French hyperinflation took place after the introduction of a non-convertible paper currency, the assignat. Most hyperinflations in history, with some exceptions, such as the French hyperinflation of 1789–1796, occurred after the use of fiat currency became widespread in the late 19th century. A necessary condition for hyperinflation is the use of paper money instead of gold or silver coins. Peter Bernholz analysed 29 hyperinflations (following Cagan's definition) and concludes that at least 25 of them have been caused in this way. While there can be a number of causes of high inflation, almost all hyperinflations have been caused by government budget deficits financed by currency creation.
The cumulative inflation rate over three years approaches, or exceeds, 100%.Interest rates, wages, and prices are linked to a price index and.Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency.Amounts of local currency held are immediately invested to maintain purchasing power The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency.It does not establish an absolute rule on when hyperinflation arises, but instead lists factors that indicate the existence of hyperinflation: The International Accounting Standards Board has issued guidance on accounting rules in a hyperinflationary environment. Economists usually follow Cagan's description that hyperinflation occurs when the monthly inflation rate exceeds 50% (this is equivalent to a yearly rate of 12874.63%). In his book, Cagan defined a hyperinflationary episode as starting in the month that the monthly inflation rate exceeds 50%, and as ending when the monthly inflation rate drops below 50% and stays that way for at least a year.
Bresciani-Turroni on the German hyperinflation was published in Italian in 1931 ). In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, the book often regarded as the first serious study of hyperinflation and its effects (though The Economics of Inflation by C. A sharp decrease in real tax revenue coupled with a strong need to maintain government spending, together with an inability or unwillingness to borrow, can lead a country into hyperinflation. Hyperinflation is often associated with some stress to the government budget, such as wars or their aftermath, sociopolitical upheavals, a collapse in aggregate supply or one in export prices, or other crises that make it difficult for the government to collect tax revenue. Īlmost all hyperinflations have been caused by government budget deficits financed by currency creation. As this happens, the real stock of money (i.e., the amount of circulating money divided by the price level) decreases considerably.
Typically, however, the general price level rises even more rapidly than the money supply as people try ridding themselves of the devaluing currency as quickly as possible. Unlike low inflation, where the process of rising prices is protracted and not generally noticeable except by studying past market prices, hyperinflation sees a rapid and continuing increase in nominal prices, the nominal cost of goods, and in the supply of currency. When measured in stable foreign currencies, prices typically remain stable. This causes people to minimize their holdings in that currency as they usually switch to more stable foreign currencies. It quickly erodes the real value of the local currency, as the prices of all goods increase. In economics, hyperinflation is a very high and typically accelerating inflation.
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