Econometrica: Sep, 1993, Volume 61, Issue 5

Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence

https://doi.org/0012-9682(199309)61:5<1073:IOEIAH>2.0.CO;2-U
p. 1073-1107

Ramon Marimon, Shyam Sunder

We design and study an OLG experimental economy where the government finances a fixed real deficit through seigniorage. The economy has continua of nonstationary rational expectations equilibria and two stationary rational expectations equilibria. We do not observe nonstationary rational expectations paths. Observed paths tend to converge close to, or somewhat below, the low inflation stationary state (low ISS). The adaptive learning hypothesis is consistent with our data in selecting the low ISS rational expectations equilibrium as a long-run stationary equilibrium. nevertheless, simple adaptive learning models do not capture the market uncertainty or the biases observed in the data.