DP6216 Anticipated Fiscal Policy and Adaptive Learning
|Author(s):||George W. Evans, Seppo Honkapohja, Kaushik Mitra|
|Publication Date:||March 2007|
|Keyword(s):||expectations, Ramsey model, taxation|
|JEL(s):||D84, E21, E43, E62|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=6216|
We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two well-known set-ups, an endowment economy and the Ramsey model. In our set-up there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks.