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.
Published as: Business cycle fluctuations and the distribution of consumption in Review of Economic Dynamics , Vol. 23, No. 1, 19-41, January, 2017