Recurrent hyperinflations and learning

We use a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the 1980's. In a standard monetary model we replace the assumption of full rational expectations by a formal definition of quasi-rational learning. The model under learning matches some...

Full description

Saved in:

Bibliographic Details
Published in:	The American economic review Vol. 93; no. 5; pp. 1476 - 1498
Main Authors:	Marcet, Albert, Nicolini, Juan P
Format:	Journal Article
Language:	English
Published:	Nashville American Economic Association 01-12-2003
Subjects:	Bounded rationality Economic analysis Economic expectations Economic models Economic psychology Economic theory Economics Expectation Forecasting models Hyperinflation Inflation Inflation rates Learning Lernen Modeling Monetary economics Money demand Pricing Rational expectations Rational expectations theory Studies Theorie Working papers
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	We use a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the 1980's. In a standard monetary model we replace the assumption of full rational expectations by a formal definition of quasi-rational learning. The model under learning matches some crucial stylized facts observed during the recurrent hyperinflations experienced by several countries in the 1980's remarkably well. We argue that, despite being a small departure from rational expectations, quasi-rational learning does not preclude falsifiability of the model, it does not violate reasonable rationality requirements, and it can be used for policy evaluation.
Bibliography:	ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23
ISSN:	0002-8282 1944-7981
DOI:	10.1257/000282803322655400