Dissertation (M.Sc.) - University of Warwick, 1995.
|Statement||by Victoria Barnett.|
RATIONAL EXPECTATIONS AND THE DYNAMICS OF HYPERINFLATION* BY THOMAS J. SARGENT AND NEIL WALLACE1 INTRODUCTION THIS IS A STUDY of some theoretical difficulties and estimation problems that arise in economic models in which current expectations of future values of some of the endogenous variables enter in an essential way.2 Such models are common. Rational Expectations Theory: The rational expectations theory is an economic idea that the people make choices based on their rational outlook, available information and past experiences. The. Rational expectations are the best guess for the future. Rational expectations suggest that although people may be wrong some of the time, on average they will be correct. In particular, rational expectations assumes that people learn from past mistakes. Rational expectations have implications for economic policy. RATIONAL EXPECTATIONS vs. ADAPTIVE BEHAVIOR IN A HYPERINFLATIONARY WORLD: EXPERIMENTAL EVIDENCE Ramon Marimon Shyani Sunder U ni versity of Minnesota June, * A preliminary report of this work was presented at the Conference on Learning from Endogenous Data, Center for Analytic Economics.
In the recent literature Sargent and Wallace (IER, June, ) have estimated the demand equation for money in hyperinflation under the restriction that the adaptive formula of Phillip Cagan yields rational inflation expectations in the sense of John present paper finds evidence to reject for the Germany case the proposition that adaptive expectations are by: 8. CAGAN'S MODEL OF HYPERINFLATION UNDER RATIONAL EXPECTATIONS* BY LAWRENCE J. CHRISTIANO' 1. INTRODUCTION In Cagan published what has become a classic paper on the demand for money during hyperinflation. In that paper, the demand for real cash balances is a function of the public's expectation of the future course of inflation. Cagan. As a consequence of this, all tests of rational expectations restrictions, like those described in Section 5, can be interpreted in the Durlauf-Hall framework. Money Demand During Hyperinflation For example, tests based on the VAR model (8) are in principle similar to the Durlauf-Hall approach with Ht identical to q)t Campbell and Cited by: theory of rational expectations (TRE): Economic-behavior observation according to which: (1) On average, people can quite correctly predict future conditions and take actions accordingly, even if they do not fully understand the cause-and-effect (causal) relationships underlying the events and their own thinking. Thus, while they do not have.
proaches are all illustrated in the context of a common model, a log-linearized New Keynesian model in which both households and ﬁrms solve inﬁnite-horizon decision problems; under the hypothesis of rational expectations, the model re-duces to the standard “3-equation model” used in studies such as Clarida et al. (). The alternative. This paper shows that a competitive equilibrium model, where a representative agent maximizes welfare, expectations are rational and markets are in equilibrium can account for several hyperinflation stylized facts. The theory is built by combining two hypotheses, namely, a fiscal crisis that requires printing money to finance an increasing public deficit and a predicted change in an Cited by: ADVERTISEMENTS: Read this article to learn about the seven major implications and challenges of rational expectations. (i) Validity of Impotency Result: The most important implication of the rational expectations model on economics during the last decade or so has been that aggregate demand management designed to lower unemployment will always be ineffective. Abstract. Cagan’s () seminal work provided the first attempt to explain the hyperinflation phenomenon. That essay was so influential that small variations of Cagan’s model can be found in several textbooks, such as Blanchard and Fischer (), Obstfeld and Rogoff () and Romer ().Cagan’s model is capable of generating hyperinflation under two types of expectation Cited by: