- Title Pages
- Title Pages
- List of Tables
- List of Figures
- Preface
- Acknowledgments
- Acknowledgments
- Introduction
- Glossary of Mathematical Symbols in Order of Appearance
- Chapter One Expectations Before the Rational Expectations Revolution
- Chapter Two Rational Expectations Are Endogenous to and Abide by “the” Model
- Part Two Allais’s Theory of “Expectations” Under Uncertainty
- Chapter Three Macrofoundations of Monetary Dynamics
- Chapter Four Microfoundations of Monetary Dynamics
- Chapter Five The Fundamental Equation of Monetary Dynamics
- Chapter Six Joint Testing of the HRL Formulation of the Demand for Money and of the Fundamental Equation of Monetary Dynamics
- Chapter Seven Allais’s HRL Formulation
- Chapter Eight The HRL Formulation and Nominal Interest Rates
- Chapter Nine Perceived Returns and the Modeling of Financial Behavior
- Chapter Ten Downside Potential Under Risk
- Chapter Eleven Downside Potential Under Uncertainty
- Chapter Twelve Conclusion
- Appendix A How to Compute <i>Z</i><sub><i>n</i></sub> and <i>z</i><sub><i>n</i></sub>
- Appendix B Nominal Interest Rates and the Perceived Rate of Nominal Growth
- Appendix C Proofs
- Appendix D Comparison Between the Kalman Filter and Allais’s HRL Algorithm
- Appendix E A Note on the Theory of Intertemporal Choice
- Appendix F Allais’s Cardinal Utility Function
- Bibliography
- Index

# Allais’s HRL Formulation

# Allais’s HRL Formulation

Illustration of Its Dynamic Properties by an Example of Hyperinflation (Zimbabwe 2000–2008)

- Chapter:
- (p.131) Chapter Seven Allais’s HRL Formulation
- Source:
- Uncertainty, Expectations, and Financial Instability
- Author(s):
### Eric Barthalon

- Publisher:
- Columbia University Press

This chapter illustrates the dynamic properties of the HRL formulation by means of a detailed numerical example based on the hyperinflation observed in Zimbabwe between 2000 and 2008. It first presents the results of dynamic equilibrium and dynamic disequilibrium simulations. It shows that the perceived rate of inflation converged asymptotically toward the instantaneous rate of inflation. This asymptotic convergence happens because the rate of memory decay grows exponentially and the elasticity of the perceived rate of inflation with respect to the instantaneous rate of inflation converges toward unity. The duration of the memory of inflation is also computed, along with the distribution of forecasting errors in the HRL formulation. Finally, the chapter examines how the HRL formulation sheds light on what Charles P. Kindleberger calls “some historical puzzles in macroeconomic behavior”.

*Keywords:*
hyperinflation, Zimbabwe, dynamic equilibrium, dynamic disequilibrium, inflation, memory decay, perceived rate of inflation, forecasting errors, HRL formulation, macroeconomic behavior

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- Title Pages
- Title Pages
- List of Tables
- List of Figures
- Preface
- Acknowledgments
- Acknowledgments
- Introduction
- Glossary of Mathematical Symbols in Order of Appearance
- Chapter One Expectations Before the Rational Expectations Revolution
- Chapter Two Rational Expectations Are Endogenous to and Abide by “the” Model
- Part Two Allais’s Theory of “Expectations” Under Uncertainty
- Chapter Three Macrofoundations of Monetary Dynamics
- Chapter Four Microfoundations of Monetary Dynamics
- Chapter Five The Fundamental Equation of Monetary Dynamics
- Chapter Six Joint Testing of the HRL Formulation of the Demand for Money and of the Fundamental Equation of Monetary Dynamics
- Chapter Seven Allais’s HRL Formulation
- Chapter Eight The HRL Formulation and Nominal Interest Rates
- Chapter Nine Perceived Returns and the Modeling of Financial Behavior
- Chapter Ten Downside Potential Under Risk
- Chapter Eleven Downside Potential Under Uncertainty
- Chapter Twelve Conclusion
- Appendix A How to Compute <i>Z</i><sub><i>n</i></sub> and <i>z</i><sub><i>n</i></sub>
- Appendix B Nominal Interest Rates and the Perceived Rate of Nominal Growth
- Appendix C Proofs
- Appendix D Comparison Between the Kalman Filter and Allais’s HRL Algorithm
- Appendix E A Note on the Theory of Intertemporal Choice
- Appendix F Allais’s Cardinal Utility Function
- Bibliography
- Index