This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. April 2025
  5. When Money Dies: The Dynamics of Speculative Hyperinflations

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

When Money Dies: The Dynamics of Speculative Hyperinflations

  • Guillaume Rocheteau
American Economic Review
vol. 115, no. 4, April 2025
(pp. 1301–37)
Download Full Text PDF

Abstract

How quickly does a fiat money become valueless? I study the speculative hyperinflation equilibria of continuous-time economies with decentralized markets where money is essential. I establish necessary and sufficient conditions under which money dies in finite time. A necessary condition is that the liquidity return of money grows unbounded as the value of money approaches zero. Under CRRA preferences, the longevity of money shrinks with the money growth rate and the frequency of liquidity needs, but it increases with seller's market power. Money duration also depends on the strictness of legal restrictions and the rates of return of competing currencies.

Citation

Rocheteau, Guillaume. 2025. "When Money Dies: The Dynamics of Speculative Hyperinflations." American Economic Review 115 (4): 1301–37. DOI: 10.1257/aer.20231008

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
  • E51 Money Supply; Credit; Money Multipliers
  • E52 Monetary Policy
  • E62 Fiscal Policy