Misspecification versus bubbles in hyperinflation data: comment
In this comment I critically review some of the claims and analyses made by Hooker (2000) in his study of the Cagan hyperinflation model. I argue that: i) contrary to what Hooker claims, cointegration tests can be used to discriminate between bubbles and no bubbles; ii) contrary to Hooker's claim, his empirical results for the interwar European hyperinflations do not general imply that the Cagan model is misspecified; iii) although Hooker's analyses build directly on the Durlauf and Hall (1989) methodology, he neglects an important part of that methodology, namely the measurement of the magnitude of noise. I present such measures, and together with reported cointegration tests the noise measure help reinterpreting Hooker's empirical results.
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- Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 369-384.
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