Credit-Fueled Demand and Shrinking Aggregate Supply: A Study on the Hyperinflation in Venezuela

ABSTRACT

Money supply adapts to the demand of credit and has a crucial impact in determining production levels. However, at the same time, under certain conditions the issuance of money may also boost inflation.

In this article, with the help of Shaikh's ‘classical theory’, we explain the main reasons for the recent hyperinflation experienced in Venezuela. On the supply side, we analyze the context of loss of competitiveness due to the overvaluation of the national currency. On the other hand, we explore how the credit to the oil company (PDVSA) has led to an exponential growth in aggregate demand.

KEYWORDS:

• Monetary issuance
• hyperinflation
• Venezuela
• endogenous money
• PDVSA

JEL CODES:

• E31
• E51
• E58

Acknowledgments

I thank Alejandro Marquez and Julian Marquez as well as three anonymous reviewers for their careful attention to my work and for their insightful suggestions.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 In this study, money is defined in a restrictive way, as the sum of bills and coins and current accounts in the national banking system.