 A Multivariate I(2) cointegration analysis of German hyperinflationDimitris Georgoutsos and Georgios Kouretas Applied Financial Economics, 2004, vol. 14, issue 1, 29-41 Abstract: This paper re-examines the Cagan model of German hyperinflation during the 1920s under the twin hypotheses that the system contains variables that are I(2) and that a linear trend is required in the cointegrating relations. Using the recently developed I(2) cointegration analysis developed by Johansen (1992, 1995, 1997) extended by Paruolo (1996) and Rahbek et al. (1999) we find that the linear trend hypothesis is rejected for the sample. However, we provide conclusive evidence that money supply and the price level have a common I(2) component. Then, the validity of Cagan's model is tested via a transformation of the I(2) to an I(1) model between real money balances and money growth or inflation. This transformation is not imposed on the data but it is shown to satisfy the statistical property of polynomial cointegration. Evidence is obtained in favour of cointegration between the two sets of variables which is however weakened by the sample dependence of the trace test that the application of the recursive stability tests for cointegrated VAR models show. Date: 2004 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:14:y:2004:i:1:p:29-41 Ordering information: This journal article can be ordered from DOI: 10.1080/0960310042000164202 Access Statistics for this article Applied Financial Economics is currently edited by Anita Phillips More articles in Applied Financial Economics from Taylor & Francis Journals |
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