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Anticipated Inflation, Real Disturbances and Money Demand: The Case of Chinese Hyperinflation, 1946-49

  • Ellis W. Tallman

    ()

    (Research Officer and Senior Eonomist Federal Reserve Bank of Atlanta)

  • De-piao Tang

    (Hong Kong University of Science and Technology)

  • Ping Wang

    ()

    (Department of Economics, Vanderbilt University)

This paper re-examines the dynamics of hyperinflation extending the standard Cagan framework. In our theoretical model, we allow the relative price of capital goods in units of consumption goods to vary in order to examine 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-WWII Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflations overlook important nonlinear interactions between real and monetary activities, and hence, underestimate the true welfare costs of hyperinflation.

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File URL: http://www.accessecon.com/pubs/VUECON/vu01-w34.pdf
File Function: Revised version, 2001
Download Restriction: no

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0134.

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Date of creation: Dec 2001
Date of revision: Dec 2001
Handle: RePEc:van:wpaper:0134
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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