Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Macroeconomics of Demonetization: Theory and Some Conjectures

The Macroeconomics of Demonetization: Theory and Some Conjectures The withdrawal of high-denomination paper money in India—popularly termed ‘demonetization’—has generated interest among common people to understand what the usual macroeconomic consequences of such one-time monetary shock are. This article conjectures (a) that such unanticipated supply-side replacement of paper money of higher denominations may lead to a currency ‘trap’ in the short run and a permanent increase in the hoarding of lower denomination currencies in the long run and (b) that the effect on the GDP in the medium run can be ambiguous in a simple IS-LM framework once the effects of variable price level and changing inflation expectations are captured through the presence of an informal sector.JEL Classification: E 12, E 26, E 44, E 52 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png South Asian Journal Of Macroeconomics And Public Finance SAGE

The Macroeconomics of Demonetization: Theory and Some Conjectures

Loading next page...
 
/lp/sage/the-macroeconomics-of-demonetization-theory-and-some-conjectures-oyzogL41G5

References (24)

Publisher
SAGE
Copyright
© 2019 SAGE Publications
ISSN
2277-9787
eISSN
2321-0273
DOI
10.1177/2277978719861212
Publisher site
See Article on Publisher Site

Abstract

The withdrawal of high-denomination paper money in India—popularly termed ‘demonetization’—has generated interest among common people to understand what the usual macroeconomic consequences of such one-time monetary shock are. This article conjectures (a) that such unanticipated supply-side replacement of paper money of higher denominations may lead to a currency ‘trap’ in the short run and a permanent increase in the hoarding of lower denomination currencies in the long run and (b) that the effect on the GDP in the medium run can be ambiguous in a simple IS-LM framework once the effects of variable price level and changing inflation expectations are captured through the presence of an informal sector.JEL Classification: E 12, E 26, E 44, E 52

Journal

South Asian Journal Of Macroeconomics And Public FinanceSAGE

Published: Dec 1, 2019

There are no references for this article.