Bursting bubbles: On the rationality of hyperinflations in optimizing models |
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Authors: | Roger E.A. Farmer |
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Affiliation: | University of Pennsylvania, Philadelphia, PA 19104, USA |
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Abstract: | It is well known that perfect foresight maximizing models frequently possess a continuum of equilibria. In some of these equilibria the price level is explosive even in models in which the money supply is constant. This paper shows that a sufficient condition to rule out these unstable paths is given by the assumption that there is a smallest non-zero unit of output. |
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