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Many Countries That Experience Hyperinflation Do Not Have Market-Determined Interest m=β0×(1+ΔlnP)β1×eum = \beta _ { 0 } \times ( 1 + \Delta \ln P ) ^ { \beta _ { 1 } } \times e ^ { u }

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Many countries that experience hyperinflation do not have market-determined interest rates. As a result, some authors have substituted future inflation rates into money demand equations of the following type as a proxy: m=β0×(1+ΔlnP)β1×eum = \beta _ { 0 } \times ( 1 + \Delta \ln P ) ^ { \beta _ { 1 } } \times e ^ { u } (m is real money, and P is the consumer price index).
Income is typically omitted since movements in it are dwarfed by money growth and the inflation rate. Authors have then interpreted β1 as the "semi-elasticity" of the inflation rate. Do you see any problems with this interpretation?


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Ulrich Beck

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