Hyperinflation and Explosive Behaviour in the General Price Level

The study uses an indirect statistical approach to detect whether prices diverted from the market fundamentals in the hyperinflation episodes that took place in Latin American economies during the 1980s and more recently in Venezuela in the 2010s. The statistical methodology is a recursive unit root test that seeks to distinguish between periods where the time series of interest are difference-stationary from periods in which they exhibit explosive behaviour. The right-tailed unit root tests are applied to the time series of inflation rates and money growth rates finding supporting evidence of explosive behaviour in the former and nonexplosive behaviour in the latter in countries such as Argentina, Peru and Venezuela. The statistical approach successfully identifies historical periods of price-level bubbles and collapses over some of the hyperinflationary periods being studied.