The Yugoslav hyperinflation and stabilization of 1992-4

The process of hyperinflationary acceleration in Serbia-Montenegro in 1992-3 is found to lie in a massive Tanzi effect and collapse in real money balances. The mechanism through which the hyperinflation caused widespread shortages in spite of an absence of price control is modeled, and other microeconomic effects of the hyperinflation - in particular the fall in output - are analysed. The 1994 stabilization programme is found to have been initially successful in spite of almost exclusive reliance on remonetization resulting from the fixing of the exchange rate, and no commitment whatever to balancing the budget (there was also no price control). Subsequent changes have made the programme somewhat more orthodox, but large deficit is still programmed.