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I have a few questions about hyperinflation that I’m really curious about:

  1. I learned there are two types of inflation - demand pull and cost push. I was wondering if hyperinflation fits into the former category since printing too much money leads to increase in the money supply, lowering interest rates and increasing Investment and Consumption, moving the AD curve. So hyperinflation should be demand-pull right?

  2. My textbook states that only with a strong credible fiscal policy can hyperinflation be fixed, but I don’t understand what it means. Does it mean that monetary policy is useless when it comes to hyperinflation? And does it mean that the solution to hyperinflation is “contractionary fiscal policy” or “expansionary fiscal policy?”

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  • $\begingroup$ Hyperinflation in my experience has always been defined as >50% inflation irregardless of the determinants of it. $\endgroup$ – Brennan Aug 23 at 15:58
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So hyperinflation should be demand-pull right?

The Weimar Republic in the 1920s is the classic example of hyperinflation. An oversimplified summary is that the Weimar Republic had to pay reparations that was way beyond what its economy could support: to put it differently, forced exports led to a heavily increased AD. And so this is a case of primarily demand-pull. In general, many hyperinflations start because of expenditure increases due to war, reparations, or poor government spending. I couldn't find a clear cut primarily cost-push hyperinflation trigger but it is theoretically possible to construct such an situation: stop all production of goods and services by raising the minimum wage to infinity and taxing inputs to infinity. Of course, probably a black market will just result. Once hyperinflation sets in, supply can often collapse as people stop investing in productive assets, so both demand-pull and cost-push apply.

strong credible fiscal policy can hyperinflation be fixed, but I don’t understand what it means. Does it mean that monetary policy is useless when it comes to hyperinflation? And does it mean that the solution to hyperinflation is “contractionary fiscal policy” or “expansionary fiscal policy?”

You could trivially create hyperinflation by just unnecessarily printing increasing quantities of money. In this case, trivially adjusting your monetary policy to simply stop printing money is the solution. But it is important to remember that states almost never just print money for the sake of printing money: it is often a last choice that are forced to do to make some kind of payment (reparations, war, etc). And so the ideal solution is to stop the cause behind those payments, which is usually impossible. This would indeed be technically under the definition of contractionary fiscal policy. But to use the phrasing "contractionary fiscal policy is the solution" probably doesn't convey the severity of the situation: for example, case by case descriptions such as diplomacy (begging reparations to be reduced as in the case of the Weimar Republic) or ending the Second Congo War and self-dealing (in the case of Zimbabwe) will probably be more appropriate.

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