MONEY DEMAND AND INFLATION IN YUGOSLAVIA, 1980-1989 - COMMENT

A modified Cagan model, stating that real money and inflation are coin tegrated, has been previously estimated for a number of high inflation episodes but, however, the wide dispersion of money demand semielasti city was obtained. This comment questions the ability of the model to explain such diverse inflation episodes by showing that it does not ho ld in the extreme case of Yugoslavia, that is one of the lowest inflat ion and the highest semielasticity obtained. Thus, an alternative econ ometric evidence is supplied, indicating that cointegration is not pre sent The former is strongly backed by the economic evidence advanced t hat inflation might have a structural break. Upon testing, stationarit y with a structural break is obtained, hence explaining the absence of the cointegration.