IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Does Ricardian Equivalence Hold When Expectations are not Rational?

Listed author(s):
  • Evans, George W.
  • Honkapohja, Seppo
  • Mitra, Kaushik

This paper shows that the Ricardian Equivalence proposition can continue to hold when expectations are not rational and are instead formed using adaptive learning rules. In temporary equilibrium, with given expectations, Ricardian Equivalence holds under the standard conditions for its validity under rational expectations. Furthermore, Ricardian Equivalence holds for paths of temporary equilibria under learning provided suitable additional conditions on learning dynamics are satisfied. New cases of failure of the Ricardian proposition emerge under learning. Most importantly, agents' expectations must not depend on government's financial variables under deficit financing.

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: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7792
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7792.

as
in new window

Length:
Date of creation: Apr 2010
Handle: RePEc:cpr:ceprdp:7792
Contact details of provider: Postal:
Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.

Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


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.:

as
in new window

  1. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Working Papers 2330, National Bureau of Economic Research, Inc.
  2. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  3. Preston, Bruce, 2005. "Learning about Monetary Policy Rules when Long-Horizon Expectations Matter," MPRA Paper 830, University Library of Munich, Germany.
  4. Thomas Sargent & Noah Williams & Tao Zha, 2004. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," NBER Working Papers 10764, National Bureau of Economic Research, Inc.
  5. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695.
  6. Orphanides, Athanasios & Williams, John C, 2005. "The Decline of Activist Stabilization Policy: Natural Rate Misperceptions, Learning and Expectations," CEPR Discussion Papers 4865, C.E.P.R. Discussion Papers.
  7. Robert J. Barro, 1988. "The Ricardian Approach to Budget Deficits," Working Papers 728, Queen's University, Department of Economics.
  8. James Bullard & Stefano Eusepi, 2005. "Did the Great Inflation Occur Despite Policymaker Commitment to a Taylor Rule?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 324-359, April.
  9. Roberto Ricciuti, 2003. "Assessing Ricardian Equivalence," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 55-78, February.
  10. Jonathan Heathcote, 2005. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 161-188.
  11. James B. Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
  12. Evans, George W. & Honkapohja, Seppo & Mitra, Kaushik, 2007. "Anticipated Fiscal Policy and Adaptive Learning," CEPR Discussion Papers 6216, C.E.P.R. Discussion Papers.
  13. Thomas J. Sargent, 2008. "Evolution and Intelligent Design," American Economic Review, American Economic Association, vol. 98(1), pages 5-37, March.
  14. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
  15. Bohn, Henning, 1992. "Endogenous Government Spending and Ricardian Equivalence," Economic Journal, Royal Economic Society, vol. 102(412), pages 588-597, May.
  16. George W. Evans & Seppo Honkapohja, 1998. "Economic Dynamics with Learning: New Stability Results," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 23-44.
  17. Martin Feldstein, 1980. "Government Deficits and Aggregate Demand," NBER Working Papers 0435, National Bureau of Economic Research, Inc.
  18. George W. Evans & Seppo Honkapohja, 2008. "Learning and Macroeconomics," University of Oregon Economics Department Working Papers 2008-3, University of Oregon Economics Department.
  19. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, September.
  20. Lars Ljungqvist & Thomas J. Sargent, 2004. "Recursive Macroeconomic Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026212274x, September.
Full references (including those not matched with items on IDEAS)

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:cpr:ceprdp:7792. 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: ()

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.