Are Rational Explosive Solutions Learnable?

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It is commonly believed that rational explosive solutions are unstable or fragile under adaptive learning. Contrary to this belief, the paper shows that under realistic parameterizations, rational explosive solutions are both E-stable and strongly E-stable in a class of models with lagged endogenous variables. It also establishes the convergence of least squares learning process to explosive solutions. Taking a simple Cagan model of inflation as an application, the paper shows that money supply feedback rule gives rise to a rational explosive solution for prices which is learnable in real time. This provides a new potential explanation for historical high inflation. Finally, E-stability results for non-MSV explosive solutions are provided.
Original languageEnglish
Pages (from-to)62-66
JournalEconomics Letters
Early online date2 Jun 2017
Publication statusPublished - 1 Aug 2017


  • Money supply
  • Learnability
  • Inflation
  • E-stability


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