Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9732025 | Review of Economic Dynamics | 2005 | 32 Pages |
Abstract
Recent papers have analyzed how economies with adaptive agents may converge to and escape from self-confirming equilibria. These papers have imputed to agents a particular prior about drifting coefficients. In the context of a model of monetary policy, this paper analyzes dynamics that govern both convergence and escape under a more general class of priors for the government. We characterize how the shape of the prior influences possible cycles, convergence, and escapes. There are priors for which the E-stability condition is not enough to assure local convergence to a self-confirming equilibrium. Our analysis also isolates the source of differences in the sustainability of Ramsey inflation encountered in the analyses of Sims [Revista de Analisis Economico 3 (1988) 3] and Chung [PhD Thesis, University of Minnesota, 1990], on the one hand, and Cho, Williams, and Sargent [Rev. Econ. Stud. 69 (2002) 1], on the other.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Thomas J. Sargent, Noah Williams,