When current market price depends partly on the expected rate of market price change, it is possible that the market will launch itself onto a price bubble with price being driven by arbitrary, self-fulfilling elements in expectations. The purpose of this paper is to provide some tests of the proposition that bubbles were absent during the German hyperinflation, a proposition we are unable to reject. The test methodology that we propose is general enough to be applied to other historical or contemporary episodes.

[Agents' beliefs in the imminent reform of a particular money supply process can have a powerful effect on their predictions of such variables as the rate of inflation. To find a criterion for monetary reform, we argue that any money supply process which does not provide a finite solution for price in a Cagan-type hyperinflationary money market will be rejected by the public. Such a process does not have the basic property of money which we call "process consistency," and we suggest that agents' subjective probabilities that their money is "process consistent" are identical to the probability that they attach to a currency reform. We compute agents' subjective probabilities that a particular money supply process is process consistent for the explosive part of the German hyperinflation, and we find that the probability of process consistency reached its lowest level in the very week in which the reform started.]

When current market price depends partly on the expected rate of market price change, it is possible that the market will launch itself onto a price bubble with price being driven by arbitrary, self-fulfilling elements in expectations. The purpose of this paper is to provide some tests of the proposition that bubbles were absent during the German hyperinflation, a proposition we are unable to reject. The test methodology that we propose is general enough to be applied to other historical or contemporary episodes.

Regressions of ex post changes in floating exchange rates on appropriate interest differentials typically imply that the high-interest rate currency tends to appreciate, the "forward discount puzzle."Using data from the European Monetary System, we find that a large part of the forward discount puzzle vanishes for regimes of fixed exchange rates.That is, deviations from uncovered interest parity appear to vary in a way which is dependent upon the exchange rate regime.By using the many EMS realignments, we are also able to quantify the "peso problem.