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Learning Benevolent Leadership in a Heterogenous Agents Economy

Author

Listed:
  • Jasmina Arifovic

    (Department of economics - SFU.ca - Simon Fraser University = Université Simon Fraser)

  • Herbert Dawid

    (Dept. of Business Administration - Universität Bielefeld = Bielefeld University)

  • Christophe Deissenberg

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Olena Kostyshyna

    (PSU - Portland State University [Portland])

Abstract

This paper studies the potential commitment value of cheap talkinflation announcements in an agent-based dynamic extension of theKydland-Prescott model. In every period, the policy maker makesa non-binding inflation announcement before setting the actualinflation rate. It updates its decisions using individual evolutionarylearning. The private agents can choose between two differentforecasting strategies: They can either set their forecast equal tothe announcement or compute it, at a cost, using an adaptive learningscheme. They switch between these two strategies as a function ofinformation about the associated payoffs they obtain throughword-of-mouth, choosing always the currently most favorable one.Weshow that the policy maker is able to sustain a situation with apositive but fluctuating fraction of believers. This equilibrium isPareto superior to the outcome predicted by standard theory. Theinfluence of changes in key parameters and the impact of transmissionof information among nonbelievers on the dynamics are studied.

Suggested Citation

  • Jasmina Arifovic & Herbert Dawid & Christophe Deissenberg & Olena Kostyshyna, 2008. "Learning Benevolent Leadership in a Heterogenous Agents Economy," Working Papers halshs-00339761, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00339761
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00339761v1
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