Working Paper: CEPR ID: DP1875
Authors: Albert Marcet; Juan Pablo Nicolini
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 full 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 1980s. 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; quasirationality
JEL Codes: D83; E17; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high seignorage (E49) | expected inflation (E31) |
| expected inflation (E31) | hyperinflation (E31) |
| high seignorage (E49) | hyperinflation (E31) |
| temporary shocks (E32) | expected inflation (E31) |