Anticipated Inflation, Real Disturbances and Money Demand: The Case of Chinese Hyperinflation, 1946-49

Ellis W. Tallman (), Tang, De-piao and Ping Wang ()
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Tang, De-piao: Hong Kong University of Science and Technology

No 134, Working Papers from Department of Economics, Vanderbilt University

Abstract: This paper re-examines the dynamics of hyperinflation extending the standard Cagan framework. In our theoretical model, we allow the relative price of capital goods in units of consumption goods to vary in order to examine interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post-WWII Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflations overlook important nonlinear interactions between real and monetary activities, and hence, underestimate the true welfare costs of hyperinflation.

Date: 2001-12, Revised 2001-12
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Persistent link: http://EconPapers.repec.org/RePEc:van:wpaper:0134

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