Moffatt, Peter G. and Salies, Evens (2006): Inaccurate approximation in the modelling of hyperinflations. Published in: Quality & Quantity , Vol. 40, No. 6 : pp. 10551060.

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Abstract
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 hyperinflation 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 hyperinflation 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:  MPRA Paper 

Original Title:  Inaccurate approximation in the modelling of hyperinflations 
Language:  English 
Keywords:  hyperinflation; model specification; difference in logarithms 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C51  Model Construction and Estimation B  History of Economic Thought, Methodology, and Heterodox Approaches > B1  History of Economic Thought through 1925 > B16  Quantitative and Mathematical E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E41  Demand for Money 
Item ID:  33732 
Depositing User:  Evens Salies 
Date Deposited:  26. Sep 2011 16:10 
Last Modified:  20. Oct 2015 23:45 
References:  Attfield, C. L. F., Demery, D. and Duck, N. W. (1991). Rational Expectations in Macroeconomics, 2nd edn. Oxford, UK: Blackwell. Blanchard, O. (2003). Macroeconomics. 3rd edn. New Jersey: Prentice Hall. Cagan, P. (1956). The monetary dynamics of hyperinflation. In: M. Friedman (ed.), Studies in the Quantity Theory of Money. Chicago: University of Chicago Press. McCallum, B. T. (1989). Monetary Economics – Theory and Policy. MacMillan. Maddala, G. S. (1988). Introduction to Econometrics. London: Macmillan. Salemi, M. K. (1979). Adaptive expectations, rational expectations and the money demand in hyperinflation Germany. Journal of Monetary Economics 5: 593–604. Sargent, J. J. and Wallace, N. (1973). Rational Expectations and the dynamics of hyperinflation. International Economic Review 14: 328–350. Taylor, M. P. (1991). The hyperinflation model of money demand revisited. Journal of Money, Credit and Banking 23: 327–351. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/33732 