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Unobserved Rational Expectations and the German Hyperinflation with Endogenous Money Supply


  • Burmeister, Edwin
  • Wall, Kent D


A Kalman filtering technique is employed to test the convergent expectation hypothesis in the great German hyperinflation when the money supply is endogenously determined. After converting the model structure to a state space form, the parameters are estimated via minimization of a Gaussian likelihood function. The result is then used in a filter- smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution. Bo th para-metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Burmeister, Edwin & Wall, Kent D, 1987. "Unobserved Rational Expectations and the German Hyperinflation with Endogenous Money Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 15-32, February.
  • Handle: RePEc:ier:iecrev:v:28:y:1987:i:1:p:15-32

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    References listed on IDEAS

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    2. K. R. W. Brewer, 1963. "Decisions Under Uncertainty: Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 77(1), pages 159-161.
    3. Uzi Segal, 1984. "Nonlinear Decision Weights with the Independence Axiom," UCLA Economics Working Papers 353, UCLA Department of Economics.
    4. Roger Sherman, 1974. "The Psychological Difference Between Ambiguity and Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 166-169.
    5. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-563, June.
    6. Robert A. Jones & Joseph M. Ostroy, 1984. "Flexibility and Uncertainty," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 13-32.
    7. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, vol. 50(2), pages 277-323, March.
    8. Mossin, Jan, 1969. "A Note on Uncertainty and Preferences in a Temporal Context," American Economic Review, American Economic Association, vol. 59(1), pages 172-174, March.
    9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    10. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    11. Vernon L. Smith, 1969. "Measuring Nonmonetary Utilities in Uncertain Choices: The Ellsberg Urn," The Quarterly Journal of Economics, Oxford University Press, vol. 83(2), pages 324-329.
    12. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    13. Hogarth, Robin M & Kunreuther, Howard, 1989. "Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
    14. repec:bla:joares:v:9:y:1971:i:2:p:307-332 is not listed on IDEAS
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    Cited by:

    1. Nicolini, Juan Pablo, 1996. "Ruling out speculative hyperinflations The role of the government," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 791-809, May.
    2. Ruge-Murcia, Francisco J., 1999. "Government expenditure and the dynamics of high inflation," Journal of Development Economics, Elsevier, vol. 58(2), pages 333-358, April.
    3. RUGE-MURCIA, Francisco J., 1997. "Credibility and Signaling in Disinflation- a Cross Country Examination," Cahiers de recherche 9712, Universite de Montreal, Departement de sciences economiques.
    4. Jesús Vazquez, 1995. "The relative importance of inflation and currency depreciation in the demand for money: an application of the estimation by simulation method to the German hyperinflation," Investigaciones Economicas, Fundación SEPI, vol. 19(2), pages 269-289, May.

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