The Sticky Information Macro Model: Beyond Perfect Foresight
AbstractSticky 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 InfoArticle provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.
Volume (Year): 14 (2009)
Issue (Month): 1 (December)
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Web page: http://www.degruyter.com
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- Orlando Gomes, 2012. "Transitional Dynamics in Sticky-Information General Equilibrium Models," Computational Economics, Society for Computational Economics, vol. 39(4), pages 387-407, April.
- Gomes, Orlando, 2012.
"Information stickiness in general equilibrium and endogenous cycles,"
Economics Discussion Papers
2012-46, Kiel Institute for the World Economy.
- Gomes, Orlando, 2013. "Information stickiness on general equilibrium and endogenous cycles," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(4), pages 1-43.
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