Abstract
This paper empirically examines causality between money and prices during the Chinese hyperinflation, 1945-49. The major issue concerning the interrelationship between money and prices is the endogeneity of money supply and the rate of inflation. Both the Sims test and the Granger test indicate that there was strong feedback causation between money creation and inflation during the Chinese hyperinflation. The mutual feedback between money creation and the rate of inflation is an important cause of the development of hyperinflation.
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