Hyperinflation

Definition In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, the book often regarded as the first serious study of hyperinflation and its effects (though The Economics of Inflation by C. Bresciani-Turroni on the German hyperinflation was published in Italian in 1931). In his book, Cagan defined a hyperinflationary episode as starting in the month that the monthly inflation rate exceeds 50%, and as ending when the monthly inflation rate drops below 50% and stays that way for at least a year. Economists usually follow Cagan’s description that hyperinflation occurs when the monthly inflation rate exceeds 50%.[4] The International Accounting Standards Board has issued guidance on accounting rules in a hyperinflationary environment. It does not establish an absolute rule on when hyperinflation arises. Instead, it lists factors that indicate the existence of hyperinflation: The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency; Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; Interest rates, wages, and prices are linked to a price index; and The cumulative inflation rate over three years approaches, or exceeds, 100%.