English, Article, Journal or magazine article edition: A MULTIVARIATE I(2) COINTEGRATION ANALYSIS OF GERMAN HYPERINFLATION Dimitris Georgoutsos; George Kouretas

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Bookmark: http://trove.nla.gov.au/version/77050
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • A MULTIVARIATE I(2) COINTEGRATION ANALYSIS OF GERMAN HYPERINFLATION
Author
  • Dimitris Georgoutsos
  • George Kouretas
Physical Description
  • preprint
Notes
  • This paper re-examines the Cagan model of German hyperinflation during the 1920s under the twin hypotheses that the system contains variables that are I(2) and that a linear trend is required in the cointegrating relations. Using the recently developed I(2) cointegration analysis developed by Johansen (1992, 1995, 1997) extended by Paruolo (1996) and Rahbek et al. (1999) we find that the linear trend hypothesis is rejected for the sample. However, we provide conclusive evidence that money supply and the price level have a common I(2) component. Then, the validity of Cagan’s model is tested via a transformation of the I(2) to an I(1) model between real money balances and money growth or inflation. This transformation is not imposed on the data but it is shown to satisfy the statistical property of polynomial cointegration. Evidence is obtained in favor of cointegration between the two sets of variables which is however weakened by the sample dependence of the trace test that the application of the recursive stability tests for cointegrated VAR models show.
  • I(2) analysis, hyperinflation, cointegration, identification, temporal stability
  • RePEc:crt:wpaper:0001
Language
  • English
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