The statistical skeleton of the demand for real money balances during the German hyperinflation episode January 1921-November 1923

Ahmed Asseery

Applied Economics Letters, 1999, vol. 6, issue 2, 93-96

Abstract: The aim of this study is to re-examine the common belief that the existence of the demand for real money balances during the German hyperinflation episode 1921:01-1923:11 is conditioned on truncating the data on June/July 1923 or on the omission of the first 18 months. It is demonstrated in this study that a stable relation can be found for the period 1921:03-1923:11 through taking into account the nonlinear functional relationship amongst the variables of the cointegrating regression. Using a variant of Phillips-Loretan ECM it is shown that, while the equilibrium error is forecastable on the basis of lagged change of real wage and the variability of inflation alone, the adjustment of actual to desired real money balances is, indeed, instantaneous as predicted by Cagan.

Date: 1999
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DOI: 10.1080/135048599353708

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