Nominal and Real Disturbances and Money Demand in Chinese Hyperinflation |
| |
| Authors: | Ellis W. Tallman De-Piao Tang Ping Wang |
| |
| Affiliation: | Tallman:;Research Officer and Senior Economist, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470. E-mail Tang:;Associate Professor of Economics, Division of Social Science, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong. E-mail Wang:;Professor of Economics and Research Associate, Vanderbilt University and National Bureau of Economic Research, Department of Economics, Vanderbilt University, 214 Calhoun Hall, Nashville, TN 37235. E-mail |
| |
| Abstract: | This article reexamines the dynamics of hyperinflation by allowing variability in the relative price of capital goods in units of consumption goods that reflects interactions between the real and monetary sectors. The theory generates empirically testable implications that suggest expanding the standard Caganian money demand function to include both anticipated inflation and relative price effects in a nonlinear fashion. Employing data from the post–WW II Chinese hyperinflationary episode, the empirical findings suggest that conventional econometric investigations of money demand during hyperinflation overlook important nonlinear interactions between real and monetary activities and, hence, underestimate the welfare costs of hyperinflation. |
| |
| Keywords: | |
|
|
