IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Expectational diversity in monetary economies

  • Brock, William A.
  • de Fontnouvelle, Patrick

We investigate an overlapping generations monetary economy in which agents' expectations depend upon backward looking predictors of the future price level. We use discrete choice theory to model how agents select a predictor based on its past forecast error. Letting the number of available predictors tend to infinity, we obtain the large type limit of the system. Taking the large type limit dramatically reduces the number of free parameters, while maintaining the expectational diversity which we argue is necessary for constructing plausible learning-based models. The model's dynamics are strongly influenced by the intensity of choice, which measures how sensitive an agent's predictor choice is to differences in forecast errors across predictors. When the intensity of choice is low, the monetary steady state is stable. As the intensity of choice increases, two types of behavior may emerge. First, the system may undergo a saddle- node bifurcation and become explosive. Second, the system may undergo a Hopf bifurcation, in which case we document the emergence of highly irregular equilibrium price paths. The conditions under a Hopf bifurcation occurs seem economically plausible.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 24 (2000)
Issue (Month): 5-7 (June)
Pages: 725-759

in new window

Handle: RePEc:eee:dyncon:v:24:y:2000:i:5-7:p:725-759
Contact details of provider: Web page:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:24:y:2000:i:5-7:p:725-759. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.