Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?

32 Pages Posted: 4 Jul 2004

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley; Peterson Institute for International Economics; National Bureau of Economic Research; Centre for Economic Policy Research

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 1982

Abstract

Knife-edge stability is a common property of dynamic monetary models assuming perfect foresight or rational expectations. These models can be closed with the assumption that the economy's equilibrium lies on the unique convergent path (the saddlepath). While this empirically plausible assumption yields sensible results, aggregative models are not specified in sufficient detail to allow one to prove that the saddlepath is the unique equilibrium path. Brock (1974, 1975) and Brock and Scheinkman (1980) have advanced models in which individual preferences are more fully specified and in which, under certain conditions, the uniqueness and stability of equilibrium can be rigorously demonstrated. This paper shows that these uniqueness conditions are economically unreasonable. Therefore, the question these maximizing models address remains unresolved.

Suggested Citation

Obstfeld, Maurice and Rogoff, Kenneth S., Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out? (February 1982). NBER Working Paper No. w0855. Available at SSRN: https://ssrn.com/abstract=227542

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