Vol. 16 No. 4 (1996)
How to Cite
Orthodox models of high inflation: a critical analysis
Abstract
This paper argues that orthodox models of high inflation for developing
countries, based on seminal Cagan’s model of hyperinflation, present some weak points
by ignoring the complexity brought to the economy by high inflation, as well as by
assuming that economic agents can dwell in this situation because they are endowed with
an “unbounded rationality” to take their decisions. The paper argues too, that in order to
understand this process and to suggest proper policies, it is necessary to recognize that a
desinflationary process requires gradual policies that allow economic agents to adjust their
behavior to the new circumstances that are brought about by these policies. The hypothesis
to make about this behavior is that is characterized by a “bounded rationality”.
JEL Classification: E31; E13.
Keywords: Inflation hyperinflation stabilization