Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky
AbstractPricesThis paper studies the properties of adaptive learning as a device to select amongst the rational expectations equilibria of a monetary overlapping generations model. It extends previous contributions by introducing monopolistic competition and improves upon them by analyzing learning in a model with a well-defined temporary equilibrium map, a coherent informational setup, and properly specified microfoundations. The main result is that adaptive learning is a robust selection mechanism that independent from the degree of imperfect competition always selects the same equilibrium. The indeterminate steady state and the non-stationary equilibria are never stable. The determinate low inflation steady state is the unique stable equilibrium; however, depending on how agents forecast, stability is found to be related to observable characteristics of the economy.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 69.
Date of creation: 01 Sep 2001
Date of revision:
Publication status: Published in Review of Economic Studies, 2003, vol. 70, pages 887-908
adaptive learning; equilibrium selection; rational expectations; indeterminacy; stability;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-05 (All new papers)
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