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Nominal and Real Disturbances and Money Demand in Chinese Hyperinflation

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  • Ellis W. Tallman
  • De-Piao Tang
  • Ping Wang

Abstract

This article reexamines the dynamics of hyperinflation by allowing variability in the relative price of capital goods in units of consumption goods that reflects interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post--WW II Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflation overlook important nonlinear interactions between real and monetary activities and, hence, underestimate the welfare costs of hyperinflation. Copyright 2003, Oxford University Press.

Suggested Citation

  • Ellis W. Tallman & De-Piao Tang & Ping Wang, 2003. "Nominal and Real Disturbances and Money Demand in Chinese Hyperinflation," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 234-249, April.
  • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:2:p:234-249
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    1. Tang, De-piao & Wang, Ping, 1993. "On relative price variability and hyperinflation," Economics Letters, Elsevier, vol. 42(2-3), pages 209-214.
    2. Tallman, Ellis W. & Wang, Ping, 1995. "Money demand and the relative price of capital goods in hyperinflations," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 375-404, November.
    3. Frenkel, Jacob A, 1977. "The Forward Exchange Rate, Expectations, and the Demand for Money: The German Hyperinflation," American Economic Review, American Economic Association, vol. 67(4), pages 653-670, September.
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    7. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
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    10. Rogers, John H & Wang, Ping, 1993. "Sources of Fluctuations in Relative Prices: Evidence from High Inflation Countries," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 589-605, November.
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    12. Wang, Ping & Yip, Chong K, 1992. "Alternative Approaches to Money and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 553-562, November.
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    Cited by:

    1. Burdekin, Richard C.K. & Whited, Hsin-hui I.H., 2005. "Exporting hyperinflation: The long arm of Chiang Kai-shek," China Economic Review, Elsevier, vol. 16(1), pages 71-89.
    2. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    3. Zhao, Liuyan & Li, Lianfa, 2015. "Interest rate, money demand and seigniorage: The Chinese hyperinflation 1946–1949," China Economic Review, Elsevier, vol. 34(C), pages 169-179.
    4. Kia, Amir & Darrat, Ali F., 2007. "Modeling money demand under the profit-sharing banking scheme: Some evidence on policy invariance and long-run stability," Global Finance Journal, Elsevier, vol. 18(1), pages 104-123.

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