Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky
PricesThis paper studies the properties of adaptive learning as a device to select amongst the rational expectations equilibria of a monetary overlapping generations model. It extends previous contributions by introducing monopolistic competition and improves upon them by analyzing learning in a model with a well-defined temporary equilibrium map, a coherent informational setup, and properly specified microfoundations. The main result is that adaptive learning is a robust selection mechanism that independent from the degree of imperfect competition always selects the same equilibrium. The indeterminate steady state and the non-stationary equilibria are never stable. The determinate low inflation steady state is the unique stable equilibrium; however, depending on how agents forecast, stability is found to be related to observable characteristics of the economy.
|Date of creation:||01 Sep 2001|
|Date of revision:|
|Publication status:||Published in Review of Economic Studies, 2003, vol. 70, pages 887-908|
|Contact details of provider:|| Postal: I-80126 Napoli|
Phone: +39 081 - 675372
Fax: +39 081 - 675372
Web page: http://www.csef.it/
More information through EDIRC
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.:
- Ramon Marimon & Shyam Sunder, 1993.
"Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence,"
Economics Working Papers
25, Department of Economics and Business, Universitat Pompeu Fabra.
- Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, vol. 61(5), pages 1073-107, September.
- Jordi Galí & Mark Gertler, 1998.
"Inflation dynamics: A structural econometric analysis,"
Economics Working Papers
341, Department of Economics and Business, Universitat Pompeu Fabra.
- Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
- Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
- Lettau, M. & Van Zandt, T., 1995.
"Robustness of Adaptive Expections as an Equilibrium Selection Device,"
9598, Tilburg - Center for Economic Research.
- Lettau, Martin & Van Zandt, Timothy, 2001. "Robustness of Adaptive Expectations as an Equilibrium Selection Device," CEPR Discussion Papers 2882, C.E.P.R. Discussion Papers.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975.
"Monopolistic Competition and Optimum Product Diversity,"
The Warwick Economics Research Paper Series (TWERPS)
64, University of Warwick, Department of Economics.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
- Duffy John, 1994. "On Learning and the Nonuniqueness of Equilibrium in an Overlapping Generations Model with Fiat Money," Journal of Economic Theory, Elsevier, vol. 64(2), pages 541-553, December.
When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:69. 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: (Lia Ambrosio)
If references are entirely missing, you can add them using this form.