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Are stationary hyperinflation paths learnable?

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  • Adam, Klaus
  • Evans, George W.
  • Honkapohja, Seppo

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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Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2004/15.

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Date of creation: 2003
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Handle: RePEc:zbw:cfswop:200415

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

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References

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  1. Lettau, M. & Van Zandt, T., 1995. "Robustness of Adaptive Expections as an Equilibrium Selection Device," Papers, Tilburg - Center for Economic Research 9598, Tilburg - Center for Economic Research.
  2. Arifovic, Jasmina, 1995. "Genetic algorithms and inflationary economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(1), pages 219-243, August.
  3. Adam, Klaus, 2003. "Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky Prices," CFS Working Paper Series 2003/03, Center for Financial Studies (CFS).
  4. Ramon Marimon & Shyam Sunder, 1993. "Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 25, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Evans, George W & Honkapohja, Seppo & Marimon, Ramon, 1996. "Convergence in Monetary Inflation Models with Heterogeneous Learning Rules," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1310, C.E.P.R. Discussion Papers.
  6. Bruno, Michael, 1989. "Econometrics and the Design of Economic Reform," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 275-306, March.
  7. Duffy John, 1994. "On Learning and the Nonuniqueness of Equilibrium in an Overlapping Generations Model with Fiat Money," Journal of Economic Theory, Elsevier, Elsevier, vol. 64(2), pages 541-553, December.
  8. Fischer, Stanley, 1984. "The economy of Israel," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 20(1), pages 7-52, January.
  9. Stanley Fischer, 1983. "The Economy of Israel," NBER Working Papers 1190, National Bureau of Economic Research, Inc.
  10. Sargent, Thomas J., 1991. "Equilibrium with signal extraction from endogenous variables," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(2), pages 245-273, April.
  11. Van Zandt, Timothy & Lettau, Martin, 2003. "Robustness Of Adaptive Expectations As An Equilibrium Selection Device," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 7(01), pages 89-118, February.
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Cited by:
  1. Guse, Eran A., 2008. "Learning in a misspecified multivariate self-referential linear stochastic model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(5), pages 1517-1542, May.
  2. 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, Elsevier, vol. 31(4), pages 1376-1391, April.
  3. Martin Ellison & Joseph Pearlman, 2010. " Saddlepath Learning," CDMA Conference Paper Series, Centre for Dynamic Macroeconomic Analysis 0710, Centre for Dynamic Macroeconomic Analysis.
  4. Stefano Eusepi, 2005. "Central bank transparency under model uncertainty," Staff Reports, Federal Reserve Bank of New York 199, Federal Reserve Bank of New York.

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