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: $m = \beta _ { 0 } \times ( 1 + \Delta \ln P ) ^ { \beta _ { 1 } } \times e ^ { u }$ (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?

Question

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 = \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?

Quizplus · Accepted Answer

The Answer of 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: $m = \beta _ { 0 } \times ( 1 + \Delta \ln P ) ^ { \beta _ { 1 } } \times e ^ { u }$ (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?

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

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