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The Sticky Information Macro Model: Beyond Perfect Foresight

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  • Gomes Orlando

    ()
    (Instituto Superior de Contabilidade e Administração de Lisboa/Escola Superior de Comunicação Social; Economics Research Center (UNIDE/ISCTE))

Abstract

Sticky information monetary models have been used in the macroeconomic literature to explain some of the observed features regarding inflation dynamics. In this paper, we explore the consequences of relaxing the rational expectations assumption usually taken in this type of model; in particular, by considering expectations formed through adaptive learning, it is possible to arrive to results other than the trivial convergence to a fixed point long-term equilibrium. The results involve the possibility of endogenous cyclical motion (periodic and a-periodic), which emerges essentially in scenarios of hyperinflation. In low inflation settings, the introduction of learning implies a less severe impact of monetary shocks that, nevertheless, tend to last for additional time periods relative to the pure perfect foresight setup.

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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 14 (2009)
Issue (Month): 1 (December)
Pages: 1-37

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Handle: RePEc:bpj:sndecm:v:14:y:2009:i:1:n:1

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Cited by:
  1. Gomes, Orlando, 2012. "Information stickiness in general equilibrium and endogenous cycles," Economics Discussion Papers 2012-46, Kiel Institute for the World Economy.
  2. Orlando Gomes, 2012. "Transitional Dynamics in Sticky-Information General Equilibrium Models," Computational Economics, Society for Computational Economics, vol. 39(4), pages 387-407, April.

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