Are Hyperinflation Paths Learnable?
Posted: 27 Oct 2005
Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under 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. These paths are shown to be stable under least squares learning if agents can utilize contemporaneous data. In an economy with a mixture of agents, some of whom only have access to lagged data, stable hyperinflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high.
Keywords: Indeterminacy, inflation, stability of equilibria, seigniorage
JEL Classification: C62, D83, D84, E31
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