Keywords: Hyperinflation, bubble, specification error
Abstract: This paper analyzes tests of the Cagan hyperinflation-money
demand model that have several advantages relative to those in
the literature. They do not confound specification error with
rational bubbles, are implementable with a linear procedure, and
are frequently able to detect periodically collapsing bubbles that
have challenged existing tests. After a Monte Carlo analysis, the tests
are applied to data from hyperinflations in Austria, Germany,
Hungary, and Poland. Strong evidence of model misspecification is
found for Austria, while the model with a rational, explosive component
well characterizes the Polish data. Inferences for Germany and
Hungary are mixed.
Full paper (1645 KB PDF)
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Last update: January 28, 1998