Misspecification versus bubbles in hyperinflation data: comment

In this article, I critically review some of the claims and analyses made by Hooker (J. Int. Money Financ. 19 (2000) 583), in his study of the Cagan hyperinflation model. I argue that: (i) contrary to what Hooker claims, cointegration tests can be used to discriminate between bubbles and no bubbles; (ii) contrary to Hookerʹs claim, his empirical results for the interwar European hyperinflations do not in general imply that the Cagan model is misspecified; (iii) although Hookerʹs analyses build directly on the Durlauf and Hall (Bounds on the variances of specification errors in models with expectations. NBER Working Paper 2936, Massachusetts, Cambridge, 1989) methodology, he neglects an important part of that methodology, namely the measurement of the magnitude of noise. I present such measures, and together with reported cointegration tests, the noise measures help reinterpreting Hookerʹs empirical results.