IMF Working Papers describe research in progress by the author(s) and are published to elicit
comments and to encourage debate. The views expressed in IMF Working Papers are those of the
author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
IMF Working Papers describe research in progress by the author(s) and are published to elicit
comments and to encourage debate. The views expressed in IMF Working Papers are those of the
author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
It is widely feared that, once prices are decontrolled in the formerly centrally–planned economies, households’ release of previously accumulated money will trigger a hyperinflation. This paper finds, instead, that whether a country’s fiscal, monetary, and labor market policies are destabilizing typically does not depend on the money stock. However, the release of a monetary overhang can precipitate a large initial real wage shock. To the extent such a shock is not feasible politically, there is a motive for monetary reform, which must be weighed against the cost of reduced public confidence in money.