Dr. WOO Kai Yin2025-08-012025-08-012024In Tang, C. H., Woo, K. Y., Hon, T. Y., Au, W. K., Wong, W. K., & Wu, H. F. (Eds.). (2024). Bubbles and behavioral finance (pp. 45-69). B P International.97881973195019788197319587http://hdl.handle.net/20.500.11861/24378The purpose of this paper is to test for the presence of price and exchange rate bubbles in Cagan's model using data from the interwar European hyperinflations of Germany, Hungary, and Poland. Markov-switching cointegration test would be adopted for the empirical analysis. Then, the regime-shifting behaviour of time series variables isassumed to depend on unobservablestates generated by a first-order Markov chain. Theprobability law that governs the Markov-switching regimes is advantageous in that it ismore flexible andallowsthe data to determine the specific form of nonlinearities that are consistent with the sample information.Inferences about the probabilities of the unobservable states at each point in time can also be made.enCagan ModelPrice BubblesExchange Rate BubblesMarkov-SwitchingBook Chapter10.9734/bpi/mono/978-81-973195-8-7/CH3