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Functional form of the demand for real balances in Cagan's hyperinflation model

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  • John Ashworth
  • Lynne Evans

Abstract

This paper uses recent advances in the development of testable implications of the Cagan model of hyperinflation. It extends the range of candidate functional forms of the demand for real balances in hyperinflations to include nonstandard versions in which the absolute inflation elasticity is a decreasing function of inflation. These nonstandard functional forms are of interest because they are known to have desirable theoretical properties. This paper finds empirical justification for a nonstandard form that performs at least as well as the traditional semilogarithmic functional form.

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  • John Ashworth & Lynne Evans, 1998. "Functional form of the demand for real balances in Cagan's hyperinflation model," Applied Economics, Taylor & Francis Journals, vol. 30(12), pages 1617-1623.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:12:p:1617-1623
    DOI: 10.1080/000368498324698
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    Cited by:

    1. Geneviève BOYREAU-DEBRAY, 1998. "Money Demand and the Potential of Seigniorage in China," Working Papers 199821, CERDI.
    2. Sokic Alexandre, 2012. "The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money," German Economic Review, De Gruyter, vol. 13(2), pages 142-160, May.
    3. Livio Stracca, 2003. "The Functional Form Of The Demand For Euro Area M1," Manchester School, University of Manchester, vol. 71(2), pages 172-204, March.
    4. Hartwell, Christopher A & Szybisz, Martin Andres, 2021. "Corralling Expectations: The Role of Institutions in (Hyper)Inflation," MPRA Paper 105612, University Library of Munich, Germany.
    5. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    6. Alexandre Sokic, 2008. "Theoretical support for a new class of demand for real cash balances in explosive hyperinflations," Working Papers of BETA 2008-13, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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