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.