This article examines the argument that the explosion in inter-enterprise debt in newly emerging market economies contributed to inflation in those countries. It shows that the growth of inter-enterprise debt (sometimes referred to as pseudo-money) is a normal phenomenon, to be expected in a transition economy. It also shows that without government complicity, the growth in inter-enterprise debt will not persist and, hence, cannot lead to a lasting inflation. Data from Lithuania in the early 1990s are presented to support this position.
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