The Yugoslav Hyperinflation of 1992–1994: Causes, Dynamics, and Money Supply Process

Abstract

The paper demonstrates that the Yugoslav hyperinflation, the second highest and the second longest episode in economic history, was driven by excessive money supply that monetized various deficits that emerged upon the disintegration of the country. The identified cointegrating relations showed that money growth was weakly exogenous and affected inflation via currency depreciation. This indicates the presence of exchange-rate-based pricing, whereas the exogeneity of money implies that money was the common stochastic trend fueling currency depreciation and inflation. Money growth itself followed a random walk with a drift, which, together with its exogeneity, was a result of the Central Bank's loss of control over the money supply process.J. Comp. Econom., June 1999, 27(2), pp. 335–353. The University of Belgrade and CES MECON, Kamenička 6, 11000 Belgrade, Federal Republic of Yugoslavia; International Monetary Fund, Fiscal Affairs IS-3574, 700 19th Street NW, Washington, DC 20431; and the University of Belgrade and CES MECON, Kamenička 6, 11000 Belgrade, Federal Republic of Yugoslavia.