High Inflation, Hyperinflation and Explosive Roots: The Case of Yugoslavia
AbstractThe focus is on ’explosive root VAR’ modelling of money, prices, wages, and exchange rates applied to the Jugoslav high inflation/hyperinflation transition period from a centrally planned economy to a more market oriented economy. The I(2) model, which has previously been used to estimate the Cagan model for hyperinflation, is shown to yield incorrect inference when there are explosive roots in the data. The paper develops an econometric framework for the empirical analysis of hyperinflationary episodes and illustrates the importance of exploiting the system dynamics of all the variables in the system for a full understanding of the hyperinflationary mechanisms. The empirical results suggest that excessive nominal wage claims, inflationary expectations and the rate of currency depreciation were the main causes to the Yugoslav hyperinflation rather than the financing of government debt by money printing.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 02-23.
Length: 28 pages
Date of creation: Oct 2002
Date of revision:
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Explosive roots; Hyperinflation; Polynomial Cointegration; Transition Economies;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-05 (All new papers)
- NEP-CBA-2003-01-05 (Central Banking)
- NEP-ECM-2003-01-05 (Econometrics)
- NEP-IFN-2003-01-05 (International Finance)
- NEP-TRA-2003-01-05 (Transition Economics)
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- Ahlgren, Niklas & Nyblom, Jukka, 2005. "Tests Against Stationary and Explosive Alternatives in Vector Autoregressive Models," Working Papers 511, Hanken School of Economics.
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