High Inflation, Hyperinflation and Explosive Roots. The Case of Yugoslavia

Katarina Juselius and Zorica Mladenovic
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Zorica Mladenovic: University of Belgrade

No 02-23, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: The focus is on 'explosive root VAR' modelling of money, prices, wages, and exchange rates applied to the Yugoslav high inflation/hyperinflation transition period from a centrally planned economy to a more market oriented economy. The I(2) model, which has previously been used to estimate the Cagan model for hyperinflation, is shown to yield incorrect inference when there are explosive roots in the data. The paper develops an econometric framework for the empirical analysis of hyperinflationary episodes and illustrates the importance of exploiting the system dynamics of all the variables in the system for a full understanding of the hyperinflationary mechanisms. The empirical results suggest that excessive nominal wage claims, inflationary expectations and the rate of currency depreciation were the main causes to the Yugoslav hyperinflation rather than the financing of government debt by money printing.

Keywords: explosive roots; hyperinflation; polynomial cointegration; transition economies (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 E41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ifn and nep-tra
Date: 2002-10
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Persistent link: http://EconPapers.repec.org/RePEc:kud:kuiedp:0223

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