Does Ricardian Equivalence Hold When Expectations are not Rational?
This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satis?fied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agentsÂ¡Â¯ expectations must not depend on governmentÂ¡Â¯s financial variables under deficit financing.
|Date of creation:||15 Apr 2010|
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