TESTING FOR RATIONAL INFLATIONARY BUBBLES - THE CASE OF ARGENTINA, BRAZIL AND ISRAEL

In this paper it is examined whether the existence of rational bubbles can explain the dynamics of the price level during the Argentine, Bra zilian and Israeli high inflations in the first half of the 1980s. Bas ed on the Cagan (1956) money demand model, the West (1987) specificati on test finds evidence of rational inflationary bubbles in the three c ountries when the money supply is assumed to be exogenous. However, if endogeneity of money is taken into account, there is no evidence of r ational bubbles.