Finite-time singularity signature of hyperinflation

D Sornette, H Takayasu and Wei-Xing Zhou

Physica A: Statistical Mechanics and its Applications, 2003, vol. 325, issue 3, 492-506

Abstract: We present a novel analysis extending the recent work of Mizuno et al. (Physica A 308 (2002) 411) on the hyperinflations of Germany (1920/1/1–1923/11/1), Hungary (1945/4/30–1946/7/15), Brazil (1969–1994), Israel (1969–1985), Nicaragua (1969–1991), Peru (1969–1990) and Bolivia (1969–1985). On the basis of a generalization of Cagan's model of inflation based on the mechanism of “inflationary expectation” of positive feedbacks between realized growth rate and people's expected growth rate, we find that hyperinflations can be characterized by a power law singularity culminating at a critical time tc. Mizuno et al.'s double-exponential function can be seen as a discrete time-step approximation of our more general non-linear ODE formulation of the price dynamics which exhibits a finite-time singular behavior. This extension of Cagan's model, which makes natural the appearance of a critical time tc, has the advantage of providing a well-defined end of the clearly unsustainable hyperinflation regime. We find an excellent and reliable agreement between theory and data for Germany, Hungary, Peru and Bolivia. For Brazil, Israel and Nicaragua, the super-exponential growth seems to be already contaminated significantly by the existence of a cross-over to a stationary regime.

Keywords: Finite time singularity; Double-exponential growth; Hyperinflation; Econophysics; Price index; Critical time; Expectation; Positive feedback (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (15)

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Working Paper: Finite-Time Singularity Signature of Hyperinflation (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:325:y:2003:i:3:p:492-506

DOI: 10.1016/S0378-4371(03)00247-4

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