Paper #244

Title:

Recurrent hyperinflations and learning

Authors:

Albert Marcet and Juan P. Nicolini

Date:

November 1995 (Revised: November 2001)

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.

Keywords:

Hyperinflations, convertibility, stabilization plans, quasi-rationality

JEL codes:

D83, E17, E31

Area of Research:

Macroeconomics and International Economics

Published in:

American Economic Review, 93, 5, (2003), pp. 1476-98

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