Was the Money Demand during the German Hyperinflation Time Varying?

Jesús Vázquez, Universidad del País Vasco

Abstract

Two versions of Cagan's model are estimated to analyse whether or not the money supply was endogenous during the German hyperinflation. The first version is the original version of Cagan's model with rational expectations. The second version, which is called alternative version, builds on Cagan's model by considering that the semi-elasticity of the demand for money is a time-varying parameter. The estimation results for both models support the hypotheses that the alternative version provides a better fit to the German hyperinflation data than the original version, and that the money supply was endogenous.