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On testing for bubbles during hyperinflations


  • Morita Rubens

    (School of Economics, University of Bristol, Bristol, UK)

  • Psaradakis Zacharias

    (Department of Economics, Mathematics and Statistics, Birkbeck, University of London, London, UK)

  • Sola Martin
  • Yunis Patricio

    (Department of Economics, Universidad Torcuato di Tella, Buenos Aires, Argentina)


We consider testing for the presence of rational bubbles during hyperinflations via an analysis of the non-stationarity properties of relevant observable time series. The test procedure is based on a Markov regime-switching model with independent stochastic changes in its intercept, error variance and autoregressive coefficients. This model formulation allow us to disentangle fundamentals-driven changes in the drift, bubble-driven explosiveness, and volatility changes that may be fundamentals-driven and/or bubble-driven. The testing methodology is illustrated by applying it to data from hyperinflations in Argentina, Brazil, Germany and Poland.

Suggested Citation

  • Morita Rubens & Psaradakis Zacharias & Sola Martin & Yunis Patricio, 2024. "On testing for bubbles during hyperinflations," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 28(1), pages 25-37, February.
  • Handle: RePEc:bpj:sndecm:v:28:y:2024:i:1:p:25-37:n:3
    DOI: 10.1515/snde-2022-0014

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    References listed on IDEAS

    1. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1043-1078, November.
    2. Hall, Stephen G & Psaradakis, Zacharias & Sola, Martin, 1999. "Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(2), pages 143-154, March-Apr.
    3. Hooker, Mark A., 2000. "Misspecification versus bubbles in hyperinflation data: Monte Carlo and interwar European evidence," Journal of International Money and Finance, Elsevier, vol. 19(4), pages 583-600, August.
    4. Driffill, John & Sola, Martin, 1998. "Intrinsic bubbles and regime-switching," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 357-373, July.
    5. Shu-Ping Shi, 2013. "Specification sensitivities in the Markov-switching unit root test for bubbles," Empirical Economics, Springer, vol. 45(2), pages 697-713, October.
    6. Peter C. B. Phillips & Shuping Shi & Jun Yu, 2015. "Testing For Multiple Bubbles: Historical Episodes Of Exuberance And Collapse In The S&P 500," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 1043-1078, November.
    7. Hamilton, James D, 1986. "On Testing for Self-fulfilling Speculative Price Bubbles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 545-552, October.
    8. Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-930, September.
    9. Blackburn, Keith & Sola, Martin, 1996. "Market Fundamentals versus Speculative Bubbles: A New Test Applied to the German Hyperinflation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(4), pages 303-317, October.
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    More about this item


    bootstrap; bubbles; explosiveness; Markov-switching autoregressive model; unit-root test;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design


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