Money and Prices in Models of Bounded Rationality in High Inflation Economies
43 Pages Posted: 28 Jul 2007
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Money and Prices in Models of Bounded Rationality in High Inflation Economies
Abstract
This paper studies the short run correlation of inflation and money growth. We study whether a model of learning can do better than a model of rational expectations, we focus our study on countries of high inflation. We take the money process as an exogenous variable, estimated from the data through a switching regime process. We find that the rational expectations model and the model of learning both offer very good explanations for the joint behavior of money and prices.
Keywords: Inflation and money growth, switching regimes, quasi-rationality
JEL Classification: D83, E17, E31
Suggested Citation: Suggested Citation
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