Bubbles detection for inter-war European hyperinflation: A threshold cointegration approach

Hing Chan () and Kai Woo ()

Journal of Economics and Finance, 2006, vol. 30, issue 2, 169-185

Abstract: This paper undertakes an empirical investigation into the existence of inflationary bubbles during the inter-war European hyperinflation for Germany, Hungary, Poland and Russia. Our Monte Carlo simulations show that the residual-based threshold cointegration methodology of Caner and Hansen (2001) is better able to detect periodically collapsing bubbles. Moreover, this methodology possesses greater power against nonlinear stationary alternatives in a finite sample than several commonly used cointegration tests that do not allow for multiple regime shifts. The empirical results of the threshold cointegration tests provide evidence of stationary, regimeswitching processes in money demand dynamics, but suggest that there are no inflationary bubbles in any of the countries. Copyright Springer 2006

Date: 2006
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DOI: 10.1007/BF02761483

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