A note on the modelling of hyper-inflations

Moffatt, P. G. & Salies, E. (2003). A note on the modelling of hyper-inflations (Report No. 03/02). London, UK: Department of Economics, City University London.

Download (214kB) | Preview


In time series macroeconometric models, the first difference in the logarithm of a variable is routinely used to represent the rate of change of that variable. It is often overlooked that the assumed approximation is accurate only if the rates of change are small. Models of hyper-inflation are a case in point, since in these models, by definition, changes in price are large. In this letter, Cagan’s model is applied to Hungarian hyper-inflation data. It is then demonstrated that use of the approximation in the formation of the price inflation variable is causing an upward bias in the model’s key parameter, and therefore an exaggeration of the effect postulated by Cagan.

Item Type: Monograph (Discussion Paper)
Additional Information: © 2003 the authors
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Social Sciences > Department of Economics > Department of Economics Discussion Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/1416

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics