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Bubbles detection for inter-war European hyperinflation: A threshold cointegration approach
Author(s)
Date Issued
2006
Journal
ISSN
1055-0925
1938-9744
Citation
Journal of Economics and Finance, 2006, vol. 30, pp. 169-185.
Type
Peer Reviewed Journal Article
Abstract
This paper undertakes an empirical investigation into the existence of inflationary bubbles during the inter-war European hyperinflation for Germany, Hungary, Poland and Russia. Our Monte Carlo simulations show that the residual-based threshold cointegration methodology of Caner and Hansen (2001) is better able to detect periodically collapsing bubbles. Moreover, this methodology possesses greater power against nonlinear stationary alternatives in a finite sample than several commonly used cointegration tests that do not allow for multiple regime shifts. The empirical results of the threshold cointegration tests provide evidence of stationary, regimeswitching processes in money demand dynamics, but suggest that there are no inflationary bubbles in any of the countries.
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