On the Explosive Nature of Hyper-Inflation Data

30 Pages Posted: 18 Dec 2010

See all articles by Bent Nielsen

Bent Nielsen

University of Oxford - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2008

Abstract

Empirical analyses of Cagan's money demand schedule for hyper-inflation have largely ignored the explosive nature of hyper-inflationary data. It is argued that this contributes to an (i) inability to model the data to the end of the hyper-inflation, and to (ii) discrepancies between 'estimated' and 'actual' inflation tax. Using data from the extreme Yugoslavian hyper-inflation it is shown that a linear analysis of levels of prices and money fails in addressing these issues even when the explosiveness is taken into account. The explanation is that log real money has random walk behaviour while the growth of log prices is explosive. A simple solution to these issues is found by replacing the conventional measure of inflation by the cost of holding money. --

Keywords: Cost of holding money, co-explosiveness, co-integration, explosive processes, hyperinflation

JEL Classification: C32, E41

Suggested Citation

Nielsen, Bent, On the Explosive Nature of Hyper-Inflation Data (2008). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 2, 2008-21. Available at SSRN: https://ssrn.com/abstract=1726816 or http://dx.doi.org/10.5018/economics-ejournal.ja.2008-21

Bent Nielsen (Contact Author)

University of Oxford - Department of Economics ( email )

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