Money And Inflation In A Nonlinear Model
Source: University of Canterbury
A nonlinear model of inflation and growth, with a fixed rate of money growth, is developed and its global dynamics analysed. These are compared with the local, linearised dynamics of the model. It is shown that the global dynamics of the model plausibly predict hyperinflationary bubbles, which are not present in the linearised version. Numerical simulations of the model are presented. In a perfect foresight, market clearing model with an exogenously growing nominal money supply it is possible for the steady state rate of inflation to be many times greater than the rate of money growth. This type of inflation is of the bootstrap variety and cannot accelerate indefinitely.