Essays on the adverse effects of high inflation on economic growth

This dissertation accomplishes three goals. First, it models the adverse effects of high inflation-induced uncertainty on capital accumulation, a task that had proved elusive so far. Second, it documents the main channel of transmission from high inflation to growth performance: the abrupt reduction in contract length that high inflation uncertainty brings about. Third, it provides evidence that economies displaying high rates of inflation tend to have poor growth performances.; A first contribution is to model the adverse effects of inflationary uncertainty on the rate of investment. Increases in uncertainty have ambiguous effects on the rate of investment in complete contracts models. Consequently, in order to model the adverse effects of high inflation on capital accumulation, standard macro models over-impose a CIA constraint to buy capital goods. The fall in investment is thus due to an increase in the effective price of capital goods, and not due to inflation uncertainty. In the incomplete contracts model I present, the presence of high inflation uncertainty explains three key stylized facts of high inflation episodes: (i) the disappearance of long-term contracts, (ii) the reduction in specialization in production decisions, and (iii) the fall in the investment rate.; A second contribution is the use of firm-level data front income statements and balance sheets to document the main channel of transmission from high inflation to economic growth: the abrupt reduction in the maturity structure of contracts.; Finally, a new instrument for the inflation rate in cross-country growth regressions is provided, past hyperinflationary experience, exploiting the fact that countries that experienced hyperinflations in the past tend to display much lower current rates of inflation than countries that did not.