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 |
JEL(s): | E42, E62 |
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.