Empirical studies of price bubbles during the Chinese hyperinflation of years 1946-49

Abstract

The purpose of this paper is to examine the existence of price bubbles during the Chinese hyperinflation. To do that, we propose to use the Durlauf and Hall's signal extraction approach for carrying out the analysis. However, we find two areas in which improvements can be made. First, fully-modified econometric methods are adopted to handle the "spurious results" problem. Second, we decompose the price level in a different way with an aim to avoid making arbitrary assumptions on the structure of model disturbance in the fundamental price. From the analysis, we conclude that the model disturbance is a white noise and the price bubble is likely to exist.