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Wednesday, 7 November 2012

The Generally Accepted Definition of Hyperinflation

The Generally Accepted Definition of Hyperinflation

The International Accounting Standard Board´s definition of hyperinflation is the generally accepted definition in the world economy since April 1989, the date IAS 29 was authorized.

The IASB defines hyperinflation in IAS 29 Financial Reporting in Hyperinflationary Economies, Par. 3 (e) as follows:


"the cumulative inflation rate over three years is approaching, or exceeds, 100%."
 
The IASB´s definition if followed by millions of accountants and all countries implementing International Financial Reporting Standards since April 1989.
 
In 1956, Phillip Cagan wrote The Monetary Dynamics of Hyperinflation, generally regarded as the first serious study of hyperinflation and its effects. In it, he defined a hyperinflationary episode as starting in the month that the monthly inflation rate exceeds 50%, and it ending when the monthly inflation rate drops below 50% and stays that way for at least a year.[4] Economists usually follow Cagan’s description.
 
No country in the world follows Cagan´s definition for any purpose or is required to follow Cagan´s definition.



Nicolaas Smith

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