TY  - JOUR
AU  - Sturzenegger,Federico
TI  - Hyperinflation with Currency Substitution:  Introducing an Indexed Currency
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4184
PY  - 1992
Y2  - October 1992
UR  - http://www.nber.org/papers/w4184
L1  - http://www.nber.org/papers/w4184.pdf
N1  - Author contact info:
Federico Sturzenegger
Banco Ciudad de Buenos Aires
E-Mail: fsturzenegger@bancociudad.com.ar
AB  - Currency substitution (CS) and financial adaptation are in general believed to increase the equilibrium rate of inflation. This result derives from a setup in which the government finances a certain amount of real resources through money printing and where CS reduces the base of the inflation tax. This paper shows this intuition wrong for those situations where the hyperinflation is expectations-driven. Incorporating CS in an Obstfeld-Rogoff (1983) framework I show reduces the inflation rates along the hyperinflationary equilibrium. The intuition is simple: if agents have an easy way of substituting away from domestic currency then the required inflation rates to sustain a path where real balances disappears is necessarily lower. The implications of the model are then tested empirically.
ER  -