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Are Stationary Hyperinflation Paths Learnable?

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  • Klaus Adam
  • George W. Evans
  • Seppo Honkapoja

Abstract

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. The hyperinflationary paths are stable under learning if agents can utilize contemporaneous data. However, in an economy populated by a mixture of agents, some of whom only have access to lagged data, stable inflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-04/cesifo_wp936.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 936.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_936

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Keywords: indeterminacy; inflation; stability of equilibria; seigniorage;

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  1. Bruno, Michael, 1989. "Econometrics and the Design of Economic Reform," Econometrica, Econometric Society, vol. 57(2), pages 275-306, March.
  2. Fischer, Stanley, 1984. "The economy of Israel," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 20(1), pages 7-52, January.
  3. Duffy John, 1994. "On Learning and the Nonuniqueness of Equilibrium in an Overlapping Generations Model with Fiat Money," Journal of Economic Theory, Elsevier, vol. 64(2), pages 541-553, December.
  4. Lettau, Martin & Van Zandt, Timothy, 2001. "Robustness of Adaptive Expectations as an Equilibrium Selection Device," CEPR Discussion Papers 2882, C.E.P.R. Discussion Papers.
  5. Sargent, Thomas J., 1991. "Equilibrium with signal extraction from endogenous variables," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 245-273, April.
  6. Evans, George W. & Honkapohja, Seppo & Marimon, Ramon, 2001. "Convergence In Monetary Inflation Models With Heterogeneous Learning Rules," Macroeconomic Dynamics, Cambridge University Press, vol. 5(01), pages 1-31, February.
  7. Stanley Fischer, 1983. "The Economy of Israel," NBER Working Papers 1190, National Bureau of Economic Research, Inc.
  8. Klaus Adam, 2003. "Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky Prices," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 887-907.
  9. Arifovic, Jasmina, 1995. "Genetic algorithms and inflationary economies," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 219-243, August.
  10. Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, vol. 61(5), pages 1073-107, September.
  11. Van Zandt, Timothy & Lettau, Martin, 2003. "Robustness Of Adaptive Expectations As An Equilibrium Selection Device," Macroeconomic Dynamics, Cambridge University Press, vol. 7(01), pages 89-118, February.
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Cited by:
  1. McCallum, Bennett T., 2007. "E-stability vis-a-vis determinacy results for a broad class of linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1376-1391, April.
  2. Guse, E., 2005. "Learning in a Misspecified Multivariate Self-referential Linear Stochastic Model," Cambridge Working Papers in Economics 0548, Faculty of Economics, University of Cambridge.
  3. Martin Ellison & Joseph Pearlman, 2010. "Saddlepath Learning," Economics Series Working Papers 505, University of Oxford, Department of Economics.
  4. Stefano Eusepi, 2005. "Central bank transparency under model uncertainty," Staff Reports 199, Federal Reserve Bank of New York.

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