The Time Series Behaviour of Spot Exchange Rates in the German Hyper-inflation Period: (Was the Process Chaotic?).

A discrete time approximation to the continuous time hyper-inflation model of Sargent and Wallace (1993) in which the authorities finance a given budget deficit by printing money appears to admit the possibility of chaotic solutions. In this paper we investigate the time series properties of daily observations on the Pound Reichsmark spot exchange rate in the inter-war hyper-inflation period. Our empirical analysis is suggestive that spot rates were generated by a non-linear possibly chaotic process.