Hyperinflation


Hyperinflation

:"Certain figures in this article use scientific notation for readability."

In economics, hyperinflation is inflation that is "out of control", a condition in which prices increase rapidly as a currency loses its value. Formal definitions vary from a cumulative inflation rate over three years approaching 100% to "inflation exceeding 50% a month." In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.

The definition used by most economists is "an inflationary cycle without any tendency toward equilibrium." A vicious circle is created in which more and more inflation is created with each iteration of the cycle. Although there is a great deal of debate about the root causes of hyperinflation, it becomes visible when there is an unchecked increase in the money supply or drastic debasement of coinage, and is often associated with wars (or their aftermath), economic depressions, and political or social upheavals.

Characteristics

In 1956, Phillip Cagan wrote "The Monetary Dynamics of Hyperinflation"Phillip Cagan, "The Monetary Dynamics of Hyperinflation", in Milton Friedman (Editor), "Studies in the Quantity Theory of Money", Chicago: University of Chicago Press (1956).] , generally regarded as the first serious study of hyperinflation and its effects. In it, he defined hyperinflation as a monthly inflation rate of at least 50%. -1 ight)

Price doubling time qquad qquad quad quad = frac{log_{10} 2}{log_{10} left(1+ frac{inflation}{100} ight)}

Years per added zero of the price = frac{1}{log_{10} left(1+ frac{inflation}{100} ight)}

At redenominations often three zeroes are cut from the bills. It can be read from the table that if the (annual) inflation is for example 100%, it takes 3.32 years to produce one more zero on the price tags, or 3 × 3.32 = 9.96 years to produce three zeroes. Thus can one expect a redenomination to take place about 9.96 years after the currency was introduced.

ee also

* Inflation accounting
* Inflation
* Biflation
* Chronic inflation
* Gold as an investment
* Store of value
* List of economics topics
* Redenomination

References

Further reading

* Costantino Bresciani-Turroni, "The Economics of Inflation" (English transl.). Northampton, England: Augustus Kelly Publishers, 1937, on the German 1919-1923 inflation.
* Shun-Hsin Chou, "The Chinese Inflation 1937-1949", New York, Columbia University Press, 1963, Library of Congress Cat. 62-18260.
* Andrew Dickson White, "Fiat Money Inflation in France", Caxton Printers, Idaho, 1969. a popular description of the 1789-1799 inflation.
* Murray N. Rothbard, [http://www.mises.org/story/1829 "The Case for the 100 Percent Gold Dollar"] , Ludwig von Mises Institute, Auburn, Alabama, 2005. Free download. Includes section on 1945 Breton Woods system.

External links

* [http://www.sjsu.edu/faculty/watkins/hyper.htm San José State University: Episodes of hyperinflation]
* [http://www.milliondollarbabies.com A Comprehensive Gallery of Hyperinflation Banknotes]


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