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A New Test for Rational Speculative Bubbles using Forward Exchange Rates: The Case of the Interwar German Hyperinflation

Pavlidis, Efthymios and Paya, Ivan and Peel, David (2012) A New Test for Rational Speculative Bubbles using Forward Exchange Rates: The Case of the Interwar German Hyperinflation. Working Paper. The Department of Economics, Lancaster.

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    Abstract

    The probabilistic structure of periodically collapsing bubbles implies different values for the slope coefficient of alternative efficient market hypothesis tests depending on whether the bubble is in an explosive regime or not. We exploit this fact and propose a new method for bubble detection. The method does not require the specification of the process followed by fundamentals, it is not affected by a possible explosive root of the determinants of the asset price, and provides a date-stamping strategy. We analyze the Reichsmark/Dollar exchange rate for the interwar German hyperinflation period and identify periods of rational exuberance.

    Item Type: Monograph (Working Paper)
    Additional Information: 2012-003
    Uncontrolled Keywords: Rational bubble ; Forward exchange rate ; Explosive root ; Hyperinflation
    Subjects: H Social Sciences > HB Economic Theory
    Departments: Lancaster University Management School > Economics
    ID Code: 58228
    Deposited By: ep_importer_pure
    Deposited On: 25 Sep 2012 11:47
    Refereed?: No
    Published?: Published
    Last Modified: 10 Dec 2012 14:12
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/58228

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