Bitcoin and Cagan's Model of Hyperinflation

16 Pages Posted: 6 Mar 2018 Last revised: 10 Mar 2018

See all articles by Urban J. Jermann

Urban J. Jermann

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Date Written: March 7, 2018


The drivers of Bitcoin's price fluctuations are studied within a framework based on Cagan's model of hyperinflation. In the model, the price of Bitcoin is driven by stochastic adoption and payments technology, as well as endogenous expectations of future values. The model is estimated with bitcoin prices, transaction volumes, and money supply data. A majority of price fluctuations can be attributed to stochastic adoption, shocks to the payments technology are less important. The money demand elasticity is estimated to be larger than for fiat currencies during episodes of hyperinflation.

Keywords: Bitcoin, money demand, exchange rates

JEL Classification: E31, E41, F31, G12

Suggested Citation

Jermann, Urban J., Bitcoin and Cagan's Model of Hyperinflation (March 7, 2018). Available at SSRN: or

Urban J. Jermann (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
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Philadelphia, PA 19104
United States
215-898-4184 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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