budget deficits stability and the monetary dynamics of hyperinflation hyperinflationary processes usually occur in countries with extremely large budget deficits in models of inflationary finance with rational expectations e g buiter 1987 large budget deficits cannot lead to hyperinflation the purpose of this paper is to reconcile the standard theoretical model with the stylized facts it shows that by introducing a lag in the adjustment of the money market into the standard inflationary finance model large budget deficits are indeed the main reason for hyperinflation the paper also provides an explanation for the ineffectiveness of moderate reductions in the deficit in reducing inflation and argues that fiscal lags can be destabilizing copyright 1989 by ohio state university press

the austral plan in recent years several countries have experienced extremely rapid inflations but without total collapses of the national currencies argentina was one of those cases by mid 1985 the rate of price increase exceeded 30 percent per month however prices continued to be set in pesos and there remained a sizeable volume of short term nominal contracts the treatment of such inflations poses several questions what is the desirable speed of disinflation what mix of instruments can effectively act on prices without causing an excessive fall in real income how can prices be kept on a stable or moderately rising trend the austral plan announced in june 1985 combined fiscal measures with a price wage freeze and a monetary reform linked to a system for the conversion of debt contracts the program quite successfully managed the transition to a much lower inflation rate while real output recovered rapidly after an initial contraction still inflationary forces remained strong the problem of achieving a sustained stabilization proved quite difficult to solve this paper briefly describes the program and its effects with some references to current debates on stabilization policies see my 1986 study for full discussion and details

unobserved rational expectations and the german hyperinflation with endogenous money supply a kalman filtering technique is employed to test the convergent expectation hypothesis in the great german hyperinflation when the money supply is endogenously determined after converting the model structure to a state space form the parameters are estimated via minimization of a gaussian likelihood function the result is then used in a filter smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution bo th para metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

terminating hyperinflation in the dismembered habsburg monarchy to assess the validity of thomas sargent s claim that hyperinflation can be terminated without dire employment effects monthly unemploymentpercentage estimates were constructed for poland hungary and austriaover the period both before and after monetary stabilization followingworld war i these data reveal that there were significant effects onemployment in the three territories unemployment peaked in poland at alittle less than 13 percent in hungary at 12 percent and probably higher and in austria at 7 percent an attempt is made to identify those considerations that contributed to the emergence of unemploymentwith the advent of monetary stabilization copyright 1986 by american economic association

inflation and currency reform expectations of currency reform are explicitly incorporated into a rational expectations version of the cagan model of money market equilibrium where expectations about the timing of reform are lerived from a simple government rule for choosing when to reform the currency the model is estimated for three of the episodes of hyperinflation that cagan investigated and the results support the hypothesis that expectations of reform were responsible for the apparent instability of the demand for money during the final months of these hyperinflations

explaining the attacker s advantage technological paradigms organizational dynamics and the value network abstract understanding when entrants might have an advantage over an industry s incumbent firms in developing and adopting new technologies is a question which several scholars have explained in terms of technological capabilities or organizational dynamics this paper proposes that the value network the context within which a firm competes and solves customers problems is an important factor affecting whether incumbent or entrant firms will most successfully innovate in a study of technology development in the disk drive industry the authors found that incumbents led the industry in developing and adopting new technologies of every sort identified by earlier scholars at component and architectural levels competency enhancing and competency destroying incremental and radical as long as the technology addressed customers needs within the value network in which the incumbents competed entrants led in developing and adopting technologies which addressed user needs in different emerging value networks it is in these innovations which disrupted established trajectories of technological progress in established markets that attackers proved to have an advantage the rate of improvement in product performance which technologists provide may exceed the rate of improvement demanded in established markets this mismatch between trajectories enables firms entering emerging value networks subsequently to attack the industry s established markets as well

testing for rational bubbles with exogenous or endogenous fundamentals the german hyperinflation once more abstract the presence of rational price bubbles during the german hyperinflation is tested under two different structural assumptions on the money process if the money supply is constrained to be exogenous to the current inflation rate the hypothesis of no bubble can be rejected however this is no longer found to be true when a feedback rule from inflation to money creation is allowed the analysis contradicts previous results presented in the literature

american colonial monetary regimes the failure of the quantity theory and some evidence in favour of an alternate view recent developments in monetary economics suggest that the manner in which money is introduced is more important even for price level movements than the quantity of money colonial american experience provides a laboratory for testing this view it is shown that the nature of backing rather than the quantity of money determined its value large secular inflations were ended by changing the nature of backing despite continued large note issues and despite the absence of a metallic standard extremely large note issues and note withdrawals are shown not to have produced inflation currency depreciation or deflation currency appreciation

fiscal reforms and stabilisation four hyperinflation cases examined this paper discusses a hypothesis that is common to several recent explanations for the needs of hyperinflations of the 1920s namely that fiscal reforms had been responsible for their sudden end it is suggested that the very presence of these reforms can be disputed once evidence is provided on the fact that budget deficits were mostly caused by the so called oliveira tanzi effect i e deficits were mostly generated by inflation itself some observations are offered on other issues to be addressed if an alternative explanation for the stabilizations are to be found copyright 1990 by royal economic society

cagan s hypothesis and the first nationwide inflation of paper money in world history more than 25 years ago phillip cagan proposed the hypothesis that the demand for real cash balances depended mainly on the expected rate of inflation provided that the monetary sector was sufficiently isolated from changes in the real sector cagan 1956 to test his hypothesis cagan studied seven hyperinflations in modern europe during which variations in the real variables were negligible compared with the astronomical increases in prices it is well known that he got confirmatory results from his studies however until recently it has not been realized that the same hypothesis is also strongly supported by data from a very different socioeconomic context namely the first nationwide inflation of paper money in world history paper money was invented in china in the northern suing dynasty a d 960 1126 and widely used in the southern sung dynasty a d 1127 1278 the first inflation on a national scale occurred from around 1190 to the end of the dynasty when the monetary system collapsed in this inflation period available historical records do not suggest significant expansion of the economy or important changes in real income modern financial assets such as bonds and equities did

chaotic dynamics in economic time series abstract there has recently been considerable interest in chaotic dynamics in a variety of disciplines this paper introduces and then surveys some of the associated literature and techniques applications to economic theory are discussed but the primary focus is on empirical applicability in addition to surveying the literature we also provide an example of the use of these techniques in economics we conclude by highlighting the importance of the techniques for empirical work as well as considering their context in econometric methodology

the greek stabilization of 1944 46 it is a matter of great contention among economists whether economic stabilization programs can be instituted without imposing high real costs those believing in the core or underlying rate of inflation hypothesis argue that relying only on conventional monetary and fiscal policies will impose high costs the rational expectations proponents on the other hand argue that a convincing antiinflation program will likely minimize these costs as economic agents respond to a genuine regime change or change in the rules under which monetary and fiscal policies are conducted a way of discriminating between these contending views is to examine the stabilization phase of the world s episodes of hyperinflation thus far the work of thomas sargent 1982 on the post world war i experiences in austria hungary poland and germany and william bomberger and myself 1983 on post world war ii hungary have adduced evidence in support of the rationalists view price level stability was achieved rapidly without a prolonged period of high unemployment the greek stabilization of 1944 46 is not so straightforward and as such provides an interesting contrast to the other episodes its unique feature is that price level stability took over a year to achieve following the initial reform of november 11 1944 it was not achieved until in a third reform in early 1946 the greek 1018 1024

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

why are stabilizations delayed when a stabilization has significant distributional implications e g tax increases to eliminate a large budget deficit socioeconomic groups may attempt to shift the burden of stabilization onto other groups the process leading to stabilization becomes a war of attrition each group attempting to wait the others out and stabilization occurring only when one group concedes and bears a disproportionate share of the burden the authors solve for the expected time of stabilization in a model of rational delay and relate it to several political and economic variables they motivate this approach and its results by comparison to historical and current episodes copyright 1991 by american economic association

brazil s tropical plan this paper highlights the institutional features of the inflation process and contrasts two stabilization efforts in 1964 66 and in 1986 the inflation process in brazil is highly institutional it does not resemble hyperinflations where pricing and wage setting are geared to the exchange rate by the hour making it possible to stop inflation by simply containing money creation and fixing the exchange rate the two stabilization programs demonstrate that an incomes policy is an essential ingredient to non recessionary stabilization but they also show that demand restraint is inevitable if disinflation is to be viable the 1964 program was gradualist and two handed relying on the supply side on wage repression the 1986 plan was a heterodox shock treatment centered around an uncompromising price freeze and paying insufficient attention to the need for fiscal restraint this abstract was borrowed from another version of this item

the hungarian hyperinflation and stabilization of 1945 1946 inflation in hungary after world war ii was the most intense on record the reforms of august 1946 were immediately and entirely successful in stabilizing prices this paper describes and analyzes the unique policies and institutions that produced these phenomena despite its severity the hungarian experience was consistent with the less extreme inflation and stabilization experiences examined by sargent price stabilization was accomplished by fiscal rather than purely monetary measures and was paradoxically accompanied by rapid and prolonged money growth

the real bills doctrine versus the quantity theory a reconsideration two competing monetary policy prescriptions are analyzed within the context of overlapping generations models the real bills prescription is for unfettered private intermediation or central bank operations designed to produce the effects of such intermediation the quantity theory prescription in contrast is for restrictions on private intermediation designed to separate money from credit although our models are consistent with quantity theory predictions about money supply and price level behavior under these two policy prescriptions the models imply that the quantity theory prescription is not pareto optimal and the real bills prescription is

korean inflation during the u s military administration of 1945 48 in korea the general state of impoverishment created income levels too low to collect sufficient tax revenues to support the government s spending goal thus the u s military administration was forced to rely on printing substantial quantities of money to finance its real expenditure gap thereby creating a high rate of inflation while fiscal pressure was similar there was significant difference in the magnitude of the inflation for example the monthly average inflation rate reached a peak of 11 percent in korea compared to a monthly peak of 322 percent in germany this comparatively moderate rate of inflation may have allowed the korean experience to go relatively unnoticed by academics yet it affords an opportunity to examine the dynamic process of inflation during a period with circumstances similar to those that produced the more frequently studied episodes of hyperinflation section ii of the paper briefly describes the post world war ii korean economy section iii will employ a structural vector autoregression svar to model the dynamic process of inflation and discusses the long run and contemporaneous restrictions employed to identify the structural parameters the data and subsequent econometric results are reported in section iv the results will indicate that the moderately high rate of inflation during the u s military administration can be largely explained by velocity shocks to money demand suggesting that a

economic exchange during hyperinflation historical evidence indicates that hyperinflations can disrupt individuals normal trading patterns and impede the orderly functioning of markets to explore these issues we construct a theoretical model of hyperinflation that focuses on individuals and their process of economic exchange in our model buyers must carry cash while shopping and some transactions take place in a decentralized setting in which buyer and seller negotiate over the terms of trade of an indivisible good since buyers face the constant threat of incoming younger hence richer customers their bargaining position is weakened by inflation allowing sellers to extract a higher real price however we show that higher inflation also reduces buyers search increasing sellers wait for customers as a result the volume of transactions concluded in the decentralized sector falls at high enough rates of inflation all agents suffer a welfare loss

a monetary interpretation of the poincare stabilization of 1926 the stabilization of the french franc and economy in mid 1926 under premier raymond poincar6 was so dramatic that it became known as the poincar6 miracle this reform and the economic problems that precipitated it attracted considerable analytical interest during the 1920s lately economists and historians have returned to reexamine this episode yeager 32 focused on it as an example of a country pulling back from the brink of hyperinflation kindleberger 14 used it as an example of the effects of destabilizing expectations sargent 23 pointed to it in support of the contention that a convincing change in regime can quickly stabilize an economy with high inflation without the necessity of prolonged unemployment all three as well as others view the episode as one that hinged critically on a change in fiscal policy as poincar6 moved decisively to balance the budget our purpose is not to disagree with whether a regime change took place or to challenge any particular view of the transition costs of stabilization we argue instead that what poincar6 did was to alter immediately the nature of the monetary regime that was the source of the instability in the french economy during the 1920s if one were to seek a historic parallel for what poincar6 did it would not be in the stabilizations that ended the big hyperinflations that sargent 24 yeager 32 and others 4 17 18 have studied rather it would be in the spirit of the famous accord worked out between the u s treasury and the federal reserve in 1951 2

managing innovation in multi technology corporations abstract this paper introduces the concept of a multi technology corporation mtc and elaborates upon some critical problems in managing innovation in such a context a model that may aid in conceptualizing various technology strategies is presented two generic management of technology problems technology transition and technology transfer are presented and analysed two empirical case illustrations are given one case analyzes how the swedish telecommunications company ericsson managed its successful technological transition from old electro mechanical switching technology to new telephone exchanges based on spc stored program control and digital signal processing the other case analyzes how the swedish auto and aerospace company saab scania has attempted to manage technology transfer internally from each case a number of managerial lessons could be learnt regarding each of the two generic problems in managing technology in multi technology corporations in addition some implications for the theory of firm and industrial organization could be drawn based on the assumption that managerial development or learning takes place regarding technological development thereby the conventional view on innovation by invasion and creative destruction is challenged and the old schumpeter view is qualified finally in the appendix the empirical relevance of mtcs are discussed based on data from the 24 biggest r d spenders in sweden the association between growth product diversification and technological diversification has been analyzed

some colonial evidence on two theories of money maryland and the carolinas recent developments in monetary economics stress the nature of monetary injections emphasizing that they have implications for the relationship between money and prices in contrast traditional approaches posit stable money demand functions that are independent of how money is injected the former approach implies that certain proportionality relations between money and prices need not obtain this permits the two approaches to be empirically distinguished but only if an appropriate experiment is conducted the colonial period is one such experiment colonial evidence suggests that the nature of injections is crucial to the effect on prices of changes in the money supply

the technological competencies of the world s largest firms complex and path dependent but not much variety firm specific technological competencies help explain why firms are different how they change over time and whether or not they are capable of remaining competitive data on more than 400 of the world s largest firms show that their technological competencies have the following characteristics 1 1 they are typically multi field and becoming more so over time with competencies ranging beyond their product range in technical fields outside their distinctive core 2 2 they are highly stable and differentiated with both the technology profile and the directions of localised search strongly influenced by firms principal products 3 3 the rate of search is influenced by both the firm s principal products and the conditions in its home country however considerable unexplained variance suggests scope for managerial choice these findings confirm the importance of complexity and path dependency in the accumulation of firm specific technological competencies and show that managers are heavily constrained in the directions of their technological search they also show the limits of the notion of competition through variety given that the same specific field of technological competence is often essential to the development of a range of possible product configurations technological imperatives still exist

asset substitution money demand and the inflation process in brazil various domestic financial assets in brazil have provided relatively liquid nonmonetary alternatives monthly money demand estimates which include domestic asset opportunity costs and take account of t bill repurchase agreements in a dynamic error correction model demonstrate the importance of domestic substitutes in explaining money holdings money demand appears responsive and stable moreover t bills and indexed bonds have acted as an alternative to central bank liabilities as a source of finance for government deficits evidence indicates that the initial financing of government deficits through bonds bills and other nonmonetary liabilities may explain why money lags price shocks rather than vice versa copyright 1989 by ohio state university press

historical experiences with flexible exchange rates a simulation of common qualitative characteristics abstract this paper develops an analytical model of price and exchange rate determination which formalizes the evolution of the money supply expectations process calibration and simulation of the model demonstrates its ability to replicate certain stylized facts that characterize 17 historical experiences with flexible currency prices under inflationary conditions furthermore the model proves capable of tracing actual prices and exchange rates in a number of selected historical cases rather than treating each experience as a singular historical event the paper thus constitutes a step towards a general account of the rich experience with flexible exchange rates during the last two centuries

government debt and inflationary expectations as determinants of the money supply in germany 1919 23 1 he growth of the money supply has figured prom1nently in every account of germany s inflation in the 1920s the very word inftation referred more to money growth than to the rise of prices in their models of inflation especially hyperinflation recent economists treat the growth of money as an immediate and often as an exogenous cause of inflation of prices inflationary expectations play an important intermediary role and what expectations process was rational depends chiefly on what process determined the money supply sargent and wallace 1973 webb 1983 pp 443 46 unfortunately economists have rarely looked beyond the numbers at what the reichsbank did and what it left undone to investigate the money supply this paper begins with a model that reflects the central bank s own understanding of its monetary policy during the inflation period the reichsbank followed a passive policy that let the size of the money stock be determined by the government and corporate demand for credit and by the private sector s choice of the mix of debt and money in its portfolios we must see how well such a model explains money growth and whether its coefficients changed signifi

do retail gasoline prices respond asymmetrically to cost shocks the influence of edgeworth cycles asymmetric price cycles similar to edgeworth cycles are appearing in increasingly many retail gasoline markets in the united states and worldwide the asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks asymmetric passthrough this article estimates asymmetric passthrough for the market of toronto which exhibits cycles and decomposes it into two components that part explainable by the cycles and that part driven by other unknown sources significant asymmetric passthrough is found with increases passed through more quickly than decreases a significant cause of the finding is the presence of the cycles themselves

hyperinflations their origins development and termination abstract this paper summarizes and critically surveys research on hyperinflation appraisal and review of the literature considers the origins development termination and the lessons to be learned from hyperinflations the historical evidence as well as the econometric evidence is analyzed it is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations such as an understanding of the forces which link monetary and fiscal policies to inflation and policy makers role in influencing individuals expectations

process consistency and monetary reform some further evidence abstract in this paper we provide additional evidence that process consistency may have materialized as a restrictive constraint on the money generation process in addition to recomputing the time series of process consistency probabilities using new data from the german case we also supply our empirical technique to the data from the other hyperinflations studied by cagan the results are consistent with our earlier conclusions in extreme hyperinflation process consistency may have materialized as a restrictive constraint on the money generation process

firm organization industrial structure and technological innovation abstract the formal and informal structures of firms and their external linkages have an important bearing on the rate and direction of innovation this paper explores the properties of different types of firms with respect to the generation of new technology various archetypes are recognized and an effort is made to match organization structure to the type of innovation the framework is relevant to technology and competition policy as it broadens the framework economists use to identify environments that assist innovation

cagan s model of hyperinflation under rational expectations this paper studies p cagan s model of the german hyperinflation under the hypothesis that adaptive expectations are rational it shows that inference about the key money demand elasticity parameter a is very senstitive to the specification of the dynamic interaction of the unobserved money demand shock with prices and money in particular if t j sargent s 1977 specification is modified then his basic conclusions are overturned identification of a does not require prior knowledge about the covariance of unobserved shock terms and d ata on the german hyperinflation imply a sharp not loose estimate of a which is of plausible magnitude finally informal tests indicate that modifying sargent s specification gives rise to improved model fit copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the end of the hungarian hyperinflation of 1945 1946 the rational expectations approach to macroeconomics suggests that hyperinflations were ended abruptly without significant output or unemployment costs using new evidence the author finds that while transition costs did take place following the hungarian hyperinflation of 1945 46 they were not linked to the credibility of the regime change although the evidence presented actually reinforces the rational expectations interpretation of the end of hyperinflations the paper also stresses the importance of distinguishing between an economy experiencing high inflation and one emerging from a milder inflation copyright 1989 by ohio state university press

hyperinflation the exchange rate and endogenous money post world war i germany revisited abstract we re examine the interaction of domestic and external factors in the german hyperinflation by extending frenkel s monetary model of the exchange rate to incorporate 1 endogeneity of the money supply with respect to government debt expected inflation and money wages 2 the direct impact of exchange rate depreciation on the domestic price level and 3 endogenous wage determination four equation estimates support each extension of the monetary model it appears that government deficit finance the collapse of the exchange rate and the monetary transmission of the wage price spiral were all crucial contributors to the price explosion

technologies products and organization in the innovating firm what adam smith tells us and joseph schumpeter doesn t adam smith s insights into the increasingly specialized nature of knowledge production are crucially important in understanding the contemporary problems of managing innovating firms products and firms are based on an increasing range of fields of specialized technological understanding competition is not based on technological diversity but on diversity and experimentation in products etc firms rarely fail because of an inability to master a new field of technology but because they do not succeed in matching the firm s systems of coordination and control to the nature of the available technological opportunities copyright 1998 by oxford university press

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations

money credit and wages in hyperinflation post world war i germany an important feature of the german hyperinflation is the way in which accelerating monetization of both government and private debt by the reichsbank fueled the inflation process the stimulus to private credit demand arising from more rapid adjustment of money wages over this period is often ignored however the present empirical results strongly support the importance of wage pressures in augmenting fiscal influences on nominal money growth during 1920 1923 our findings also suggest that wage claims provided the main conduit through which higher inflationary expectations were accommodated by faster rates of monetary expansion