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CONVERGENCE IN MONETARY INFLATION MODELS WITH HETEROGENEOUS LEARNING RULES

Published online by Cambridge University Press:  02 March 2001

George W. Evans ,
Seppo Honkapohja  and
Ramon Marimon
George W. Evans
Affiliation:
University of Oregon
Seppo Honkapohja
Affiliation:
University of Helsinki
Ramon Marimon
Affiliation:
European University Institute and Universitat Pompeu Fabra
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Abstract

Inflation and the monetary financing of deficits are analyzed in a model in which the deficit is constrained to be less than a given fraction of a measure of aggregate market activity. Depending on parameter values, the model can have multiple steady states. Under adaptive learning with heterogeneous learning rules, there is convergence to a subset of these steady states. In some cases, a high-inflation constrained steady state will emerge. However, with a sufficiently tight fiscal constraint, the low-inflation steady state is globally stable. We provide experimental evidence in support of our theoretical results.

Keywords

InflationHeterogeneous LearningHeterogeneous ExpectationsFiscal ConstraintsMultiple Equilibria
Type
Articles
Information
Macroeconomic Dynamics , Volume 5 , Issue 1 , February 2001 , pp. 1 - 31
Copyright
© 2001 Cambridge University Press

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