A Note on the Competing Causes of High Inflation in Bulgaria during the 1990s: Money Supply or Exchange Rate?

Abstract

This note aims at analyzing Bulgaria's high inflation regime during the 1990s. Two competing causes of high inflation are explored: changes in the rate of growth of the money supply in the economy and changes in the foreign exchange rate. Both correspond to traditional theoretical explanations: the monetarist view and the balance of payments approach. Evidence suggests that a variation in the exchange rate is significant in explaining the high inflation regime in Bulgaria whereas monetary growth appears to be insignificant. Consequently, the paper underlines the importance of stabilizing the exchange rate in the short run in order to avoid high inflation.

Inflation regimes and hyperinflation: a Post-Keynesian/structuralist typology

“…It also corroborates the remark by Kaldor (1982) about the German situation in 1923: if foreign exchange remains stable during the day, prices and wages do too. This is also consistent with the analysis of the inflation observed in Bulgaria during the 1990s (Charles and Marie, 2020).…”