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Bubbles detection for inter-war European hyperinflation: A threshold cointegration approach

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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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Authors and Affiliations

  1. Department of Economics, School of Business, Hong Kong Baptist University, Kowloon Tong, Hong Kong

    Hing Lin Chan

  2. Department of Economics, Hong Kong Shue Yan College, North Point, Hong Kong

    Kai Yin Woo

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  1. Hing Lin Chan
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  2. Kai Yin Woo
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Correspondence to Hing Lin Chan.

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We are grateful for the comments from the anonymous referee and the editor.

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Chan, H.L., Woo, K.Y. Bubbles detection for inter-war European hyperinflation: A threshold cointegration approach. J Econ Finan 30, 169–185 (2006). https://doi.org/10.1007/BF02761483

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