| This dissertation present four essays on inflation and exchange rates. The first two essays are of a set. They describe a model in which uncertainty about the mapping from monetary policy instruments (e.g., money growth, nominal exchange rate depreciation) to macroeconomic outcomes (e.g., inflation, output) mitigates the inflationary bias problem. The second of the two essays in this set assumes that monetary policy based on exchange rate management reduces this uncertainty, and thus can reduce equilibrium inflation. Thus, I provide an explanation for the popularity of exchange-rate-based stabilization plans that is predicated on the oft-noted ease with which the public can monitor the central bank's actions given a policy of targetting the exchange rate.; The third essay presents an exchange-based model of hyperinflation. It shows how hyperinflation can arise because of the refusal of sellers to accept cash rather than the frenetic attempt by cash-holders to spend it. The fourth essay is an econometric test for hysteresis in currency substitution. |
