The Stabilizing Effect of Sanctions during Hyperinflations: the Case of Venezuela Reopens the Debate

In this paper, we shed new light on the intended destabilizing effect of sanctions in the target country. A prevailing assumption in international political economy, based on studies of non-hyperinflationary periods, suggests that sanctions contribute to inflationary pressures. Contrary to this view, our empirical results find no evidence of such an effect during the hyperinflation in Venezuela. While higher sanction intensity is associated with a short run deceleration in money growth, we find also no evidence of a lasting contraction in the regime’s financing capacity. Although the complexities of sanctions’ impact are not well-understood, our findings call into question the effectiveness of sanctions. Nevertheless, relying on monthly and weekly time series the well-known money supply-price level nexus also holds for the Venezuelan hyperinflation.