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

Maurice Obstfeld and Kenneth Rogoff

No 855, NBER Working Papers from National Bureau of Economic Research, Inc

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.

Date: 1982-02
Note: ITI IFM
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Published as Obstfeld, Maurice, and Kenneth Rogoff. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?" Journal of Political Economy, Vol. 91, No. 4, (August 1983), pp. 675-687. Journal of Economic Literature, Vol . 22, No. 1, (March 1984).

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Journal Article: Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out? (1983)
Working Paper: Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out? (1983)
Working Paper: Speculative hyperinflations in a maximizing models: can we rule them out? (1981)
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