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Convergence In Monetary Inflation Models With Heterogeneous Learning Rules

  • Evans, George W.
  • Honkapohja, Seppo
  • Marimon, Ramon

Inflation and financing of public expenditure by are analysed in an OLG model where the deficit is constrained to be less than a given fraction of intergenerational savings. Even if there may be multiplicity of steady-state equilibria, we show that, with such a constraint, the dynamics with adaptive learning are globally convergent to a set of equilibria satisfying a local stability condition. We allow for heterogeneity of agents' learning rules and look at the role of some basic behavioural assumptions, such as a certain degree of random e-precautionary savings and inertia on agents' updating of beliefs. We also provide experimental evidence on the effect of public expenditure constraints on the stability of equilibria.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 5 (2001)
Issue (Month): 01 (February)
Pages: 1-31

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Handle: RePEc:cup:macdyn:v:5:y:2001:i:01:p:1-31_01
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