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Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence

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  • Marimon, Ramon
  • Sunder, Shyam

Abstract

The authors design and study an OLG experimental economy where the government finances a fixed real deficit through seigniorage. The economy has continua of nonstationary rational expectations equilibria and two stationary rational expectations equilibria. The authors do not observe nonstationary rational expectations paths. Observed paths tend to converge close to, or somewhat below, the low inflation stationary state. The adaptive learning hypothesis is consistent with the data in selecting the low inflation stationary state rational expectations equilibrium as a long-run stationary equilibrium. Nevertheless, simple adaptive learning models do not capture the market uncertainty or the biases observed in the data. Copyright 1993 by The Econometric Society.

Suggested Citation

  • Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, vol. 61(5), pages 1073-1107, September.
  • Handle: RePEc:ecm:emetrp:v:61:y:1993:i:5:p:1073-107
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    References listed on IDEAS

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    1. Blume, Lawrence E. & Easley, David, 1982. "Learning to be rational," Journal of Economic Theory, Elsevier, vol. 26(2), pages 340-351, April.
    2. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    3. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
    4. Blume, L. E. & Bray, M. M. & Easley, D., 1982. "Introduction to the stability of rational expectations equilibrium," Journal of Economic Theory, Elsevier, vol. 26(2), pages 313-317, April.
    5. Lim, Suk S & Prescott, Edward C & Sunder, Shyam, 1994. "Stationary Solution to the Overlapping Generations Model of Fiat Money: Experimental Evidence," Empirical Economics, Springer, vol. 19(2), pages 255-277.
    6. Bruno, Michael, 1989. "Econometrics and the Design of Economic Reform," Econometrica, Econometric Society, vol. 57(2), pages 275-306, March.
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