Money and Prices in Models of Bounded Rationality in High Inflation Economies

43 Pages Posted: 28 Jul 2007

See all articles by Albert Marcet

Albert Marcet

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR)

Juan Pablo Nicolini

Universitat Pompeu Fabra

Multiple version iconThere are 2 versions of this paper

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

Marcet, Albert and Nicolini, Juan Pablo, Money and Prices in Models of Bounded Rationality in High Inflation Economies. Review of Economic Dynamics, Vol. 8, pp. 452-479, 2005, Available at SSRN: https://ssrn.com/abstract=847504

Albert Marcet (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2740 (Phone)
+34 93 542 1746 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Juan Pablo Nicolini

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain