Suchergebnisse

Attempts by governments to finance a substantial proportion of expenditure by seigniorage can lead to multiple inflationary equilibria. Theoretical models suggest that, in these circumstances, inflation follows a non‐linear process with up to three steady states and that the stability characteristics of these depend on the process by which expectations are formed. In this paper we show that the exponential smooth transition autoregression (ESTAR) model is capable of exhibiting the required characteristics and so provides a suitable vehicle for analysing inflation in high inflation economies. We estimate ESTAR models for three well‐known inflationary episodes—the German hyperinflation of the early 1920s and post‐Second World War inflations in Argentina and Brazil. Our results imply that, during the periods in question, each of these economies possessed a stable low‐level equilibrium rate of inflation but that the variances of inflation shocks were large enough to drive each economy into a high inflation state. For Brazil, this high inflation state is stable around a particular value but in the cases of Argentina and Germany the high inflation state is characterized by inflation cycles.

This paper examines evidence for interactions between arms spending by NATO and the Warsaw Pact. Empirical work in this area typically starts from some version of the Richardson model. Unfortunately an important characteristic of the data series (non-stationarity) means that results based upon regressions specified in levels must be viewed with suspicion. Moreover, there are reasons for believing that the dynamics of the system are more complicated than envisaged in the simple models. We circumvent these problems by adopting a modelling procedure which allows the data to reveal the dynamics and which ensures that variables enter the regressions in an appropriate manner. The basic idea is to start by testing for the existence of a long-run, or equilibrium, relationship between levels of spending. Given this, one can imagine each organization adjusting its spending to the current deviation from equilibrium. Current changes in expenditure are modelled as functions of the equilibrium deviation and of previous changes in spending by both pacts. More technically we exploit recent developments in the theory of cointegrated variables and utilize a general-to-specific modelling strategy. Our results provide evidence for the existence of an equilibrium spending configuration with the dynamic equations providing satisfactory descriptions of the data and around three-quarters of the year-to-year changes in spending being explained by the equations.