Are Dynamically Inefficient Equilibria Learnable?
AbstractWe consider the stability under adaptive learning dynamics of steady state equilibria in Diamond`s (1965) overlapping generations growth model with capital and money. Interior steady state equilibria of this model can be either dynamically inefficient or dynamically efficient. We show that a necessary condition for an equilibrium of this model to be stable under adaptive learning is that the equilibrium is dynamically efficient. In other words, adaptive learning can be used as a selection criterion to exclude dynamically inefficient equilibria. We also provide conditions under which a dynamically efficient equilibrium of this model involving the use of both capital and money will be stable under adaptive learning dynamics.
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Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 441.
Date of creation: Jul 2011
Date of revision: Jan 2011
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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