The Hungarian Hyperinflation and Stabilization of 1945-1946 William A. Bomberger University of Florida Gail E. Makinen Georgetown University Inflation in Hungary after World War II was the most intense on record. The reforms of August 1946 were immediately and entirely successful in stabilizing prices. This paper describes and analyzes the unique policies and institutions that produced these phenomena. Despite its severity, the Hungarian experience was consistent with the less extreme inflation and stabilization experiences examined by Sargent. Price stabilization was accomplished by fiscal rather han purely monetary measures and was, paradoxically, accompanied by rapid and prolonged money growth Any attempt to study this era is fraught with difficulties. Hungarian state archives are reality closed. Because this period is now 36 years in the past, few individuals associated with it are still alive, outside Hungary. Fortunately, we located several strategically placed officials in the U.S. and Hungarian governments who provided us with information that made it possible to conclude our study. We were able to locate these individuals through the assistance of Professor Joseph Zrinyi, $.]., of Georgetown University: Aladar Szegedy-Maszak, Hungarian Minister to the United States, 1945— 46; and Professor Will resident of the Hungarian National Bank (the central bank of Hungary) from AusustFrom July 1945 until August 1946, Hungary experienced the worst hyperinflation on record. In this brief period of 13 months, the price level rose by a factor of 3 x 10°. When stabilization was achieved on August 1, exchange of old for new currency was at a rate of 400 octillion to one. This contrasts with the conversion in Germany's fa- mous hyperinflation of a trillion to one. ~ -- pon ve only Hungary had the misfortune to suffer a second hyperinflation after World War II. Second, in Cagan’s (1956) seminal study of the demand for money in hyperinflations, Hungary stands out as posing the most formidable data problems. Third, Hungary is unique in its extensive experiment with indexed money. to December 1945, and a member of its board of directors until June 1946. Dr. Karasz provided us with a great deal of information on the inflationary process, the unique Hungarian experience with indexed money, and institutional details surrounding the successful stabilization, Dr. L. Laszlé Ecker-Racz, economic counselor to the Allied Control Commission the allied occupational authority in Hungary) and later economic counselor at the American Legation in Budapest, made available two extensive statisti- cal and economic analyses of the Hungarian economy and state finances during and after the hyperinflation. The data used in these studies were provided to the US. Legation by the government of Hungary. Many of these data have been hitherto unavailable to researchers. We were unable to inspect the Hungarian archives, but Dr Uournat of Paticat 1983, vol. 91. no. 5} STWR by the University af Chicago. All rights reserved, 0022-S808/88/0105.0002501.50