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Inflationary Surprises and Real Economic Activity in Germany: Some Tests Based on ‘Efficient Market’ Expectations

  1. Journals
  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 18, Issue 2
  5. pp. 230–239

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Darrat, A. Inflationary Surprises and Real Economic Activity in Germany: Some Tests Based on ‘Efficient Market’ Expectations. Credit and Capital Markets – Kredit und Kapital, 18(2), 230-239. https://doi.org/10.3790/ccm.18.2.230
Darrat, Ali F. "Inflationary Surprises and Real Economic Activity in Germany: Some Tests Based on ‘Efficient Market’ Expectations" Credit and Capital Markets – Kredit und Kapital 18.2, 1985, 230-239. https://doi.org/10.3790/ccm.18.2.230
Darrat, Ali F. (1985): Inflationary Surprises and Real Economic Activity in Germany: Some Tests Based on ‘Efficient Market’ Expectations, in: Credit and Capital Markets – Kredit und Kapital, vol. 18, iss. 2, 230-239, [online] https://doi.org/10.3790/ccm.18.2.230
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Inflationary Surprises and Real Economic Activity in Germany: Some Tests Based on ‘Efficient Market’ Expectations

Darrat, Ali F.

Credit and Capital Markets – Kredit und Kapital, Vol. 18 (1985), Iss. 2 : pp. 230–239

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.18.2.230
Language
Multiple languages
Pages
10

Author Details

Ali F. Darrat, New Orleans

References

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Abstract

Inflationary Surprises and Real Economic Activity in West Germany: Some Tests Based on “Efficient Market” Expectations

This inquiry addresses the empirical validity of the Expectations-Adjusted Supply Function hypothesis (EASF) in the case of West Germany. As is well known, this hypothesis contends that only the unanticipated (surpise) component of inflation can be transmitted to the real side of the economy. Since systematic stabilization policies can work only if systematic (anticipated) inflation affects real economic activity, the EASF hypothesis implies that such policies are impotent. Drawing on Fama’s proposition that short-term interest rates provide efficient estimates of anticipated inflation, actual inflation in West Germany over the period 1960:1 – 1983:3 are decomposed into anticipated and unanticipated elements. These inflation measures are then used to test the validity of the EASF hypothesis. The empirical results strongly support the hypothesis in that only unanticipated inflation exerts a significant negative impact upon unemployment. For West Germany, such results therefore cast doubts on the usefulness of systematic stabilization policies.

Table of Contents

Section Title Page Action Price
Ali F. Darrat: Inflationary Surprises and Real Economic\rActivity in Germany: Some Tests Based on\r'Efficient Market' Expectations 230
I. Introduction 230
II. Efficient Market Estimates of Anticipated Inflation 231
III. The EASF Test Results 234
IV. Concluding Remarks 236
References 237
Zusammenfassung: Inflationäre Überraschungen und reale Wirtschaftsaktivität in Westdeutschland: Einige Tests auf der Grundlage von Erwartungen „effizienter Märkte 237
Summary: Inflationary Surprises and Real Economic Activity in West Germany: Some Tests Based on \"Efficient Market\" Expectations 238
Résumé: Surprises inflationnistes et activités économiques réelles en République fédérale d'Allemagne: quelques analyses basées sur des attentes de «marché efficient» 238

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