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Recurrent Hyperinflations and Learning

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  • Albert Marcet
  • Juan P. Nicolini

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.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1476-1498

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1476-1498

Note: DOI: 10.1257/000282803322655400
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  1. Bental, B. & Eckstein, Z., 1995. "A Neoclassical Interpretation of Inflation and Stabilization in Israel," Papers 28-95, Tel Aviv.
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  13. Albert Marcet & Juan P. Nicolini, 2003. "Recurrent Hyperinflations and Learning," American Economic Review, American Economic Association, vol. 93(5), pages 1476-1498, December.
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  1. [??]A prophecy that misread could have been...
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