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Recurrent Hyperinflations and Learning

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Author Info
Albert Marcet ()
Juan P. Nicolini

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Abstract

This paper uses a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the last decade. We study a standard monetary model where the fully rational expectations assumption is replaced by a formal definition of quasi-rational learning. The model under learning is able to match remarkably well some crucial stylized facts observed during the recurrent hyperinflations experienced by several countries in the 80's. We argue that, despite being a small departure from rational expectations, quasi-rational learning does not preclude falsifiability of the model and it does not violate reasonable rationality requirements.

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Publisher Info
Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 244.

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Date of creation: Nov 1995
Date of revision: Nov 2001
Handle: RePEc:upf:upfgen:244

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Related research
Keywords: Hyperinflations; convertibility; stabilization plans; quasi-rationality;

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Find related papers by JEL classification:
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. Cars Hommes & Gerhard Sorger, 1997. "Consistent Expectations Equilibria," Tinbergen Institute Discussion Papers 97-051/1, Tinbergen Institute.
    Other versions:
  2. George W. Evans & Seppo Honkapohja, 1993. "Adaptive forecasts, hysteresis, and endogenous fluctuations," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13. [Downloadable!]
  3. Evans, George W & Honkapohja, Seppo & Marimon, Ramon, 1996. "Convergence in Monetary Inflation Models with Heterogeneous Learning Rules," CEPR Discussion Papers 1310, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-87, August. [Downloadable!] (restricted)
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  5. Arifovic, Jasmina & Bullard, James & Duffy, John, 1997. " The Transition from Stagnation to Growth: An Adaptive Learning Approach," Journal of Economic Growth, Springer, vol. 2(2), pages 185-209, July. [Downloadable!] (restricted)
  6. Kurz, Mordecai, 1994. "On Rational Belief Equilibria," Economic Theory, Springer, vol. 4(6), pages 859-76, October.
  7. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August. [Downloadable!] (restricted)
  8. Evans, George W & Honkapohja, Seppo, 1995. "Local Convergence of Recursive Learning to Steady States and Cycles in Stochastic Nonlinear Models," Econometrica, Econometric Society, vol. 63(1), pages 195-206, January. [Downloadable!] (restricted)
  9. David Easley & Aldo Rustichini, 1999. "Choice without Beliefs," Econometrica, Econometric Society, vol. 67(5), pages 1157-1184, September.
  10. Marcet, Albert & Nicolini, Juan Pablo, 1998. "Recurrent Hyperinflations and Learning," CEPR Discussion Papers 1875, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Imrohoroglu, Selahattin, 1993. "Testing for sunspot equilibria in the German hyperinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 289-317. [Downloadable!] (restricted)
  12. Funke, Michael & Hall, Stephen & Sola, Martin, 1994. "Rational bubbles during Poland's hyperinflation: Implications and empirical evidence," European Economic Review, Elsevier, vol. 38(6), pages 1257-1276, June. [Downloadable!] (restricted)
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  13. repec:cup:macdyn:v:2:y:1998:i:3:p:287-321 is not listed on IDEAS
  14. Woodford, Michael, 1986. "Learning to Believe in Sunspots," Working Papers 86-16, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  15. George W. Evans & Garey Ramey, 1995. "Calculation, Adaptation, and Rational Expectations," University of California at San Diego, Economics Working Paper Series 95-10, Department of Economics, UC San Diego.
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  16. Fudenberg, Drew & Levine, David K., 1995. "Consistency and cautious fictitious play," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1065-1089. [Downloadable!] (restricted)
    Other versions:
  17. repec:cup:macdyn:v:2:y:1998:i:2:p:156-82 is not listed on IDEAS
  18. Carlos E. Zarazaga, 1993. "Hyperinflations and moral hazard in the appropriation of seigniorage," Working Papers 93-26, Federal Reserve Bank of Philadelphia.
  19. Nicolini, Juan Pablo, 1996. "Ruling out speculative hyperinflations The role of the government," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 791-809, May. [Downloadable!] (restricted)
  20. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-60, September. [Downloadable!] (restricted)
  21. Timmermann, Allan G, 1993. "How Learning in Financial Markets Generates Excess Volatility and Predictability in Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1135-45, November. [Downloadable!] (restricted)
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