Recurrent Hyperinflations and Learning
American Economic Review
vol. 93,
no. 5, December 2003
(pp. 1476-1498)
Abstract
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.Citation
Marcet, Albert, and Juan P. Nicolini. 2003. "Recurrent Hyperinflations and Learning." American Economic Review, 93 (5): 1476-1498. DOI: 10.1257/000282803322655400JEL Classification
- C51 Model Construction and Estimation
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- E31 Price Level; Inflation; Deflation