On the behavior of fiscal policy with costly expectations
AbstractThis paper extends the Talvi and Végh (2005) model on the behavior of fiscal policy, introducing agent-based issues. Like in Talvi and Végh (2005), the theoretical framework is à la Barro (1979), but rational expectations are costly. The agents can choose between two strategies in forming expectations: buying costly rational expectations or freely following the trend. Unlike Talvi and Végh (2005), I show that procyclicality of fiscal policy is not necessarily the government's optimal behavior.
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Bibliographic InfoArticle provided by Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata in its journal Económica.
Volume (Year): LV (2009)
Issue (Month): (January-December)
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Optimal fiscal policy; cycles; agent-based economics.;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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