Hyperinflation in theory and practice: Brazil, 1980-1995

This thesis reviews the causes of and policies used to end hyperinflation using the Brazilian experience between 1980 and 1995. The work of Thomas Sargent in (Hall, 1982) and Phillip Cagan (1956) found a number of common features regarding the causes and the ending of hyperinflation in a number of European countries in the early 1920s and 1940s. They noted that vigorous monetary and fiscal measures were needed to finally end the rapid rise in prices. Second, there was a final jump in the money supply in the months after the rise of prices had ended. Third, the price level did not decline after inflation terminated. And fourth, in each case, the tax burden was increased (through an increase in taxes and a cut in government expenditures). The thesis found that the Brazilian hyperinflation displayed the characteristics previously found by Cagan and Sargent. Furthermore, the policies used to end the inflation and resulting impacts were very much in line with the experiences of the countries studied by Cagan and Sargent.