DP1310 Convergence in Monetary Inflation Models with Heterogeneous Learning Rules
|Author(s):||George W. Evans, Seppo Honkapohja, Ramon Marimon|
|Publication Date:||January 1996|
|Keyword(s):||Experimental Evidence, Fiscal Rules, Hyperinflation|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1310|
Inflation and financing of public expenditure by are analysed in an OLG model where the deficit is constrained to be less than a given fraction of intergenerational savings. Even if there may be multiplicity of steady-state equilibria, we show that, with such a constraint, the dynamics with adaptive learning are globally convergent to a set of equilibria satisfying a local stability condition. We allow for heterogeneity of agents' learning rules and look at the role of some basic behavioural assumptions, such as a certain degree of random e-precautionary savings and inertia on agents' updating of beliefs. We also provide experimental evidence on the effect of public expenditure constraints on the stability of equilibria.