Money And Prices In Models Of Bounded Rationality
- Topics:
- Global Strategy
- Tags:
- Business Operations,
- Currency & Foreign Exchange,
- Federal Reserve Bank Of Atlanta,
- Finance,
- Model,
- Real Estate
- Source:
- Federal Reserve Bank of Atlanta
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Overview: In this article, one explores the ability of simple monetary models with bounded rationality to account for the joint distribution of money and prices. They impose restrictions on the size of the mistakes agents can make in equilibrium and argue that countries with high inflation are likely to satisfy these restrictions. Their computations show that the model with bounded rationality does neither improve nor deteriorate the ability of the model to match the data. An attempt to reconcile the feature has explored models with price stickiness or with segmented markets. Efforts have been made to explain the potential role of sticky expectations in driving the high frequency movements of money and prices.
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Format: PDF | Size: 227KB | Date: Oct 2003 | Pages: 19
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