DP1875 Recurrent Hyperinflations and Learning

Author(s): Albert Marcet, Juan Pablo Nicolini
Publication Date: May 1998
Keyword(s): Convertibility, Hyperinflations, quasi-rationality, stabilization plans
JEL(s): D83, E17, E31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1875

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.