Long Run Correlations Money and Prices During Hyperinflations
Long Run Correlations Money and Prices During Hyperinflations
Morten Gleditsch
Maria Inês Peixoto
Francois Ramiro
Main objective
• Recapitulation: MV = ∑ pq
What is hyperinflation?
1985
1989
.8
.6
.6
Bolivia
Leverage
Argentina
Leverage
.4
.4
.2
.2
1990
1984 1984
1959
1961
1966
1965
1964
1963
1973
1972
1971
1970
1975
1977
1994
1993
1992
1991
1990
1989
1988
1987
1986
1997
1996
2008
2007
2006
2005
1962
1969
1968
1974
1976
1978
1981
1980
1983
1998
2003
2009
1958
1960
1967
1979
1995
1999
2001
2000
2002
2004
1957
1956
1982
197719831988
1985
1976
2001
1999
2000
2008
1995
1961
1971
2007
1969
1994
1997
1996
2005
2004
1965
1970
1998
2006
2009
2002
1962
1964
1963
1968
2003
1966
1993
1967
1974
1973
1992
1981
1980
1986
1972
1975
1982
1991
1978
1987
1979
0
0
0 .2 .4 .6 .8
0 .2 .4 .6 Normalized residual squared
Normalized residual squared
.8
.8
1988 1984
.6
.6
Israel Nicaragua
Leverage
Leverage
.4
.4
1990
.2
.2
1983
1985
1989 1980
1981
1982
1975
1978
1977
1980
1982
1992
2000
2006
2005
2008
1974
1981
1993
1999
1998
2004
2003
2002
2007
1976
1995
1985
1973
1979
1983
1996
1984
1997
2001
1994
1986
1987 1991 2003
2004
2006
2005
2002
2008
1958
1964
2007
1957
1966
1965
1995
1963
1998
2009
1969
2001
2000
1973
1988
1996
1989
1997
1961
1970
1999
1968
1959
1991
1990
1972
199319861978
1977
1967
1960
1976
1987
1974
1971
1975
19941979
1962
1992
1956
0
0
0 .2 .4 .6 0 .2 .4 .6 .8
Normalized residual squared Normalized residual squared
Basic linear
regression
Regression model
15000
3000
10000
2000
5000
1000
Argentina Bolivia
0
0
0 500 1000 1500 2000 2500 0 2000 4000 6000 8000
money money
10000
300
200
5000
100
Israel Nicaragua
0
• Assessments:
- Growth of money is statistically significant when explaining
inflations
Testing significance
of hyperinflationary
period
Test aim and procedure
• To check whether there is a structural change in the model
during the hyperinflation periods:
• Model:
Pricest=beta1+beta2moneyt+beta3dummyt+beta4dummyt*moneyt+ut
• Bolivia
- Pursued the fiscal policy of covering government
budget deficits by printing money for decades
Hyperinflation causes
• Israel
- Government - fearing the loss of public support,
focused on raising the standard of living,
increasing spendings and accelerating inflation
• Nicaragua
- High debth level and reckless governmental
spendings
Hyperinflation remedies
• Argentina
- Pegging their national currency peso to the US
dollar
• Bolivia
- Formulated a simple financial program to curb
the hyperinflation: Maintain a balanced
governmental budget by not spending more than
what was raised through taxes
Hyperinflation remedies
• Israel
- The government adopted the Economic Stabilization
Policy: A total freeze of prices of all goods and services
• Nicaragua
- Monetary and fiscal policies as the ones used in Bolivia
- Moreover, banking system's financial deficit cuts
backed by foreign aid, reestablishing confidence in the
national currency and making credit available to the
private sector
Conclusion