Yugoslav Inflation and Money

IMF Working Papers, May 1, 1991

Source details

Yugoslav inflation unfolded as a classic wage-price-exchange rate spiral through the 1970s and 1980s and exploded into hyperinflation in the last quarter of 1989.
The paper examines:
- the process of monetary accommodation of inflation,
- the behavior of demand for money,
- the interaction between monetary accommodation and money demand in Yugoslavia.
The asset-liability structure of the Central Bank, together with the policy stance on exchange and interest rates, led to a significant feedback from inflation to money supply.
Real money balances are found to have been cointegrated with other economic variables despite their explosive and seasonal nature, implying a long-run equilibrium relationship consistent with economic theory.

Topics analyzed include: Bank deposits, Credit, Demand for money, Financial services, Inflation, Monetary base, Money, Prices.
Key technical keywords and terms preserved from the source:
- Bank deposits, base money expansion, base money in Yugoslavia, Credit, currency depreciation, Demand for money, deposit scheme, dinar money, exchange rate, foreign currency, Inflation, inflation objective, Monetary base, monetary policy, money demand, money growth, money stock, NBY assets, NBY credit, policy shift, real rate of interest, WP.
Empirical result emphasized: cointegration of real money balances with other economic variables despite explosive and seasonal behavior.

Central Bank balance-sheet structure and policy choices on exchange and interest rates can generate strong feedback from inflation to money supply.
Monetary accommodation measures were central to the transition from persistent inflation to hyperinflation in late 1989.
Understanding money-demand behavior and cointegration relationships is important for assessing long-run equilibrium and for designing stabilization policies.