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Policy interaction, learning and the fiscal theory of prices Author info | Abstract | Publisher info | Download info | Related research | Statistics Evans , George W. (University of Oregon)
Honkapohja, Seppo (Bank of Finland, University of Helsinki)
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We investigate both the rational explosive inflation paths studied by McCallum (2001) and the classification of fiscal and monetary policies proposed by Leeper (1991) for stability under learning of rational expectations equilibria (REE). Our first result is that the fiscalist REE in the model of McCallum (2001) is not locally stable under learning. By contrast, in the setting of Leeper (1991), different possibilities can obtain. We find, in particular, that there are parameter domains for which the fiscal theory solution – in which fiscal variables affect the price level – can be a stable outcome under learning. For other parameter domains, the monetarist solution is the stable equilibrium.
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Paper provided by Bank of Finland in its series Research Discussion Papers with number
18/2002.
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Length: 32 pages
Date of creation: 28 Aug 2002Date of revision:
Handle: RePEc:hhs:bofrdp:2002_018Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland Web page: http://www.bof.fi/en/tutkimus More information through EDIRC
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Keywords: inflation ; expectations ; fiscal and monetary policy ; explosive price paths ; Other versions of this item:
Article Evans, George W. & Honkapohja, Seppo, 2007.
"Policy Interaction, Learning, And The Fiscal Theory Of Prices ,"
Macroeconomic Dynamics ,
Cambridge University Press, vol. 11(05), pages 665-690, November.
[Downloadable!] Paper George W. Evans & Seppo Honkapohja, 2002.
"Policy Interaction, Learning and the Fiscal Theory of Prices ,"
University of Oregon Economics Department Working Papers
2002-17, University of Oregon Economics Department, revised 07 Jun 2007.
[Downloadable!] Evans, G W & Honkapohja, Seppo, 2002.
"Policy Interaction, Learning and the Fiscal Theory of Prices ,"
CEPR Discussion Papers
3564, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Find related papers by JEL classification: D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.:
Buiter, Willem H, 1998.
"The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs and Fiscal Theories of the Price Level ,"
CEPR Discussion Papers
1799, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions: Leeper, Eric M., 1991.
"Equilibria under 'active' and 'passive' monetary and fiscal policies ,"
Journal of Monetary Economics ,
Elsevier, vol. 27(1), pages 129-147, February.
[Downloadable!] (restricted)
repec:cup:macdyn:v:2:y:1998:i:2:p:156-82 is not listed on IDEAS
Carlstrom, Charles T. & Fuerst, Timothy S., 2001.
"Timing and real indeterminacy in monetary models ,"
Journal of Monetary Economics ,
Elsevier, vol. 47(2), pages 285-298, April.
[Downloadable!] (restricted)
Other versions: Evans, George W. & Ramey, Garey, 1998.
"Calculation, Adaptation And Rational Expectations ,"
Macroeconomic Dynamics ,
Cambridge University Press, vol. 2(02), pages 156-182, June.
[Downloadable!]
Other versions:
George W. Evans & Garey Ramey, 1995.
"Calculation, Adaptation, and Rational Expectations ,"
University of California at San Diego, Economics Working Paper Series
95-10, Department of Economics, UC San Diego.
George W. Evans & Garey Ramey, 1995.
"Calculation, Adaptation, and Rational Expectations ,"
University of California at San Diego, Economics Working Paper Series
95-10r, Department of Economics, UC San Diego.
C.A. Sims, 1999.
"The Precarious Fiscal Foundations of EMU ,"
DNB Staff Reports (discontinued)
34, Netherlands Central Bank.
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McCallum, Bennett T., 2001.
"Indeterminacy, bubbles, and the fiscal theory of price level determination ,"
Journal of Monetary Economics ,
Elsevier, vol. 47(1), pages 19-30, February.
[Downloadable!] (restricted)
Other versions:
Bennett T. McCallum, .
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GSIA Working Papers
1998-19, Carnegie Mellon University, Tepper School of Business.
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NBER Working Papers
6456, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Howitt, Peter, 1992.
"Interest Rate Control and Nonconvergence to Rational Expectations ,"
Journal of Political Economy ,
University of Chicago Press, vol. 100(4), pages 776-800, August.
[Downloadable!] (restricted)
Evans, George W. & Honkapohja, Seppo, 1999.
"Learning dynamics ,"
Handbook of Macroeconomics ,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542
Elsevier.
[Downloadable!] (restricted)
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Kauko, Karlo, 2002.
"Links between securities settlement systems: An oligopoly theoretic approach ,"
Research Discussion Papers
27/2002, Bank of Finland.
[Downloadable!]
Orlando Gomes, .
"Volatility, Heterogeneous Agents and Chaos ,"
The Electronic Journal of Evolutionary Modeling and Economic Dynamics ,
IFReDE - Université Montesquieu Bordeaux IV.
[Downloadable!]
Other versions: Railavo, Jukka, 2003.
"Effects of the supply-side channel on stabilisation properties of policy rules ,"
Research Discussion Papers
34/2003, Bank of Finland.
[Downloadable!]
Bennett T. McCallum & Edward Nelson, 2006.
"Monetary and fiscal theories of the price level: the irreconcilable differences ,"
Working Papers
2006-010, Federal Reserve Bank of St. Louis.
[Downloadable!]
Other versions:
Bennett T. McCallum & Edward Nelson, 2006.
"Monetary and Fiscal Theories of the Price Level: The Irreconcilable Differences ,"
NBER Working Papers
12089, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Bennett T. McCallum & Edward Nelson, 2005.
"Monetary and Fiscal Theories of the Price Level: The Irreconcilable Differences ,"
Oxford Review of Economic Policy ,
Oxford University Press, vol. 21(4), pages 565-583, Winter.
Óscar J. Arce, 2005.
"Reflections on fiscalist divergent price-paths ,"
Banco de España Working Papers
0533, Banco de España.
[Downloadable!]
George W. Evans & Seppo Honkapohja, 2004.
"Adaptive learning and monetary policy design ,"
Macroeconomics
0405008, EconWPA.
[Downloadable!]
Other versions:
George W. Evans & Seppo Honkapohja, 2002.
"Adaptive Learning and Monetary Policy Design ,"
University of Oregon Economics Department Working Papers
2002-18, University of Oregon Economics Department, revised 04 Mar 2004.
[Downloadable!] Evans, George W & Honkapohja, Seppo, 2003.
"Adaptive Learning and Monetary Policy Design ,"
CEPR Discussion Papers
3962, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Evans, George W. & Honkapohja, Seppo, 2002.
"Adaptive learning and monetary policy design ,"
Research Discussion Papers
29/2002, Bank of Finland.
[Downloadable!] George W. Evans & Seppo Honkapohja, 2003.
"Adaptive learning and monetary policy design ,"
Proceedings ,
Federal Reserve Bank of Cleveland, pages 1045-1084.
George W. Evans & Seppo Honkapohja, 2004.
"Friedman’s money supply rule vs optimal interest rate policy ,"
Macroeconomics
0405002, EconWPA.
[Downloadable!]
Other versions:
Evans, George W. & Honkapohja, Seppo, 2003.
"Friedman's money supply rule vs optimal interest rate policy ,"
Research Discussion Papers
10/2003, Bank of Finland.
[Downloadable!] George W. Evans & Seppo Honkapohja, 2003.
"Friedman's Money Supply Rule vs. Optimal Interest Rate Policy ,"
Scottish Journal of Political Economy ,
Scottish Economic Society, vol. 50(5), pages 550-566, November.
[Downloadable!] (restricted) Granlund , Peik, 2002.
"Bank exit legislation in US, EU and Japanese financial centres ,"
Research Discussion Papers
25/2002, Bank of Finland.
[Downloadable!]
repec:bep:maccon:v:6:y:2006:i:1:p:1437-1437 is not listed on IDEAS
Other versions:
Ragna Alstadheim & Dale Henderson, 2006.
"Price-level determinacy, lower bounds on the nominal interest rate, and liquidity traps ,"
Working Paper
2006/03, Norges Bank.
[Downloadable!] Ragna Alstadheim & Dale W. Henderson, 2004.
"Price-level determinacy, lower bounds on the nominal interest rate, and liquidity traps ,"
International Finance Discussion Papers
795, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Ragna Alstadheim & Dale W. Henderson, 2006.
"Price-Level Determinacy, Lower Bounds on the Nominal Interest Rate, and Liquidity Traps ,"
The B.E. Journal of Macroeconomics ,
Berkeley Electronic Press, vol. 0(1).
[Downloadable!] Peik Granlund, 2004.
"Bank exit legislation in US, EU and Japanese financial centres ,"
Finance
0405015, EconWPA.
[Downloadable!]
George W. Evans & Seppo Honkapohja, 2003.
"Friedman's Money Supply Rule versus Optimal Interest Rate Policy ,"
University of Oregon Economics Department Working Papers
2003-30, University of Oregon Economics Department, revised 01 Oct 2003.
[Downloadable!]
Other versions: Jukka Railavo, 2004.
"Stability consequences of fiscal policy rules ,"
Macroeconomics
0404020, EconWPA.
[Downloadable!]
Evans, George W & Honkapohja, Seppo, 2008.
"Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch ,"
CEPR Discussion Papers
6640, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions:
George Evans & Seppo Honkapohja, 2008.
" Expectations, Learning and Monetary Policy: An Overview of Recent Research ,"
CDMA Working Paper Series
0802, Centre for Dynamic Macroeconomic Analysis.
[Downloadable!] George W. Evans & Seppo Honkapohja, 2008.
"Expectations, Learning, And Monetary Policy: An Overview Of Recent Research ,"
Working Papers Central Bank of Chile
501, Central Bank of Chile.
[Downloadable!] Evans , George W & Honkapohja, Seppo, 2007.
"Expectations, learning and monetary policy: an overview of recent research ,"
Research Discussion Papers
32/2007, Bank of Finland.
[Downloadable!] Jukka Railavo, 2004.
"Effects of the supply-side channel on stabilisation properties of policy rules ,"
Macroeconomics
0404028, EconWPA.
[Downloadable!]
Railavo , Jukka, 2004.
"Stability consequences of fiscal policy rules ,"
Research Discussion Papers
1/2004, Bank of Finland.
[Downloadable!]
Karlo Kauko, 2004.
"Links between securities settlement systems: An oligopoly theoretic approach ,"
Industrial Organization
0405003, EconWPA.
[Downloadable!]
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