The effects of learning and signaling on money demand: With an application to heterodox inflation stabilization programs

Francisco Ruge-Murcia

Empirical Economics, 2000, vol. 25, issue 1, 91 pages

Abstract: This paper develops a nonlinear vector autoregression of inflation and money growth subject to changes in regime. The regimes are fully characterized by the mean and variance of inflation and are conjectured to be the result of alternative government policies. Agents are unable to observe directly whether government actions are indeed consistent with the inflation rate targeted as part of a stabilization program. However, as part of their money demand decision, agents construct probability inferences regarding the regime. Government announcements are assumed to provide agents with additional, possibly truthful information regarding the regime.

Keywords: Learning; credibility; government announcements; signaling; inflation; changes in regime; non-linear vector autoregressions; money demand (search for similar items in EconPapers)
JEL-codes: E31 E63 E65 (search for similar items in EconPapers)
Date: 2000-02-14
Note: received: August 1998/Final version received: January 1999
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Citations: View citations in EconPapers (1)

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