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 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 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 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