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High Inflation, Hyperinflation and Explosive Roots: The Case of Yugoslavia


  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

  • Zorica Mladenovic

    (University of Belgrade)


The 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.

Suggested Citation

  • Katarina Juselius & Zorica Mladenovic, 2002. "High Inflation, Hyperinflation and Explosive Roots: The Case of Yugoslavia," Discussion Papers 02-23, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0223

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    Cited by:

    1. Mohamad Kazem Shirani Faradonbeh & Ambuj Tewari & George Michailidis, 2017. "Finite Time Identification in Unstable Linear Systems," Papers 1710.01852,, revised Jun 2018.
    2. Ahlgren, Niklas & Nyblom, Jukka, 2005. "Tests Against Stationary and Explosive Alternatives in Vector Autoregressive Models," Working Papers 511, Hanken School of Economics.
    3. Yoon, Gawon, 2005. "An introduction to I([infinity]) processes," Economic Modelling, Elsevier, vol. 22(3), pages 473-483, May.
    4. Bent Nielsen, 2006. "Correlograms for non-stationary autoregressions," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 68(4), pages 707-720.

    More about this item


    Explosive roots; Hyperinflation; Polynomial Cointegration; Transition Economies;

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