Scandinavian Working Papers in Business Administration
Finance Working Papers,
University of Aarhus, Aarhus School of Business, Department of Business Studies
No 02-2: Misspecification versus bubbles in hyperinflation data: Comment.
Tom Engsted ()
Additional contact information
Tom Engsted: Department of Finance, Aarhus School of Business, Postal: Fuglesangs Allé 4, 8210 Aarhus V, Denmark
Abstract: In this comment I critically review some of the claims and analyses made by Hooker (2000) in his study of the Cagan hyperinflation model. I argue that: i) contrary to what Hooker claims, cointegration tests can be used to discriminate between bubbles and no bubbles; ii) contrary to Hooker's claim, his empirical results for the interwar European hyperinflations do not general imply that the Cagan model is misspecified; iii) although Hooker's analyses build directly on the Durlauf and Hall (1989) methodology, he neglects an important part of that methodology, namely the measurement of the magnitude of noise. I present such measures, and together with reported cointegration tests the noise measure help reinterpreting Hooker's empirical results.
Keywords: Cagan model; Cointegration; Measurement of noise
14 pages, February 21, 2002
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