Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099767 | Journal of Economic Dynamics and Control | 2010 | 12 Pages |
Abstract
The motivation of this paper is to understand the effects of coupling a macroeconomic model of inflation rate dynamics, relying on an aggregate expectation, to a heterogeneous expectations framework. A standard model composed of Okun's law, an expectations-augmented Phillips curve and an aggregate demand relation is extended to allow agents to select between trend-following and rational expectations to predict the future inflation rate. Using a mixture of analytical and numerical tools we investigate the model's dynamics and discuss the conditions under which the extended model leads to endogenous fluctuations in macroeconomic variables. Some preliminary results are offered for the case in which a Taylor-like monetary policy rule is included in the model.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Marji Lines, Frank Westerhoff,