Market Fundamentals versus Price-Level Bubbles: The First Tests

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.

[1]  Michael K. Salemi.  The Forward Exchange Rate, Expectations, and the Demand for Money-The German Hyperinflation: Comment , 1980 .

[2]  Michael K. Salemi,et al.  The Demand for Money during Hyperinflation under Rational Expectations: II , 1979 .

[3]  G. Calvo.  On Models of Money and Perfect Foresight , 1979 .

[4]  Andrew B. Abel,et al.  Money demand during hyperinflation , 1979 .

[5]  Olivier J. Blanchard,et al.  Backward and Forward Solutions for Economies with Rational Expectations , 1979 .

[6]  G. Calvo.  On the indeterminacy of interest rates and wages with perfect foresight , 1978 .

[7]  Michael L. Mussa.  On the inherent stability of rationally adaptive expectations , 1978 .

[8]  B. Friedman.  Stability and Rationality in Models of Hyperinflation , 1978 .

[9]  John B. Taylor.  Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations , 1977 .

[10]  B. Mccallum.  The Role of Speculation in the Canadian Forward Exchange Market: Some Estimates Assuming Rational Expectations , 1977 .

[11]  J. Frenkel.  The Forward Exchange Rate, Expectations, and the Demand for Money-The German Hyperinflation: Reply , 1977 .

[12]  Michael L. Mussa.  Adaptive and regressive expectations in a rational model of the inflationary process , 1976 .

[13]  Thomas J. Sargent,et al.  THE DEMAND FOR MONEY DURING HYPERINFLATIONS UNDER RATIONAL EXPECTATIONS: I* , 1977 .

[14]  B. Mccallum.  Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates , 1976 .

[15]  R. Barro,et al.  This Week's Citation Classic: "Rational Expectations and the Role of Monetary Policy" , 1976 .

[16]  R. Lucas.  An Equilibrium Model of the Business Cycle , 1975, Journal of Political Economy.

[17]  Robert J. Shiller,et al.  Rational Expectations and the Dynamic Structure of Macroeconomic Models:A Critical Review , 1978 .

[18]  W. Brock.  A simple perfect foresight monetary model , 1975 .

[19]  W. Brock.  Money and Growth: The Case of Long Run Perfect Foresight , 1974 .

[20]  F. Black.  Uniqueness of the price level in monetary growth models with rational expectations , 1974 .

[21]  Thomas J. Sargent,et al.  Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment , 1973 .

[22]  L. Robert.  Some International Evidence on Output-Inflation Tradeoffs. , 1973 .

[23]  Thomas J. Sargent,et al.  THE STABILITY OF MODELS OF MONEY AND GROWTH WITH PERFECT FORESIGHT , 1972 .

[24]  P. Young,et al.  Time series analysis, forecasting and control , 1972, IEEE Transactions on Automatic Control.

[25]  R. Lucas.  Expectations and the neutrality of money , 1972 .

[26]  Frank Hahn,et al.  Equilibrium Dynamics with Heterogeneous Capital Goods , 1966 .

[27]  J. Muth.  Rational Expectations and the Theory of Price Movements , 1961 .

[28]  W. Reddaway.  THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY , 1937 .