Escaping Nash inflation

Arbeitspapier

Mean dynamics govern convergence to rational expectations equilibria of self-referential systems under least squares learning. We highlight escape dynamics that propel away from a rational expectations equilibrium under fixed-gain recursive learning schemes. These learning schemes discount past observations. In a model with a unique self-confirming equilibrium, we show that the destination of the escape dynamics is an outcome associated with government discovery of too strong a version of the natural rate hypothesis. That destination is not sustainable as a self-confirming equilibrium but is visited recurrently. The escape route dynamics cause recurrent outcomes close to the Ramsey (commitment) inflation rate in a model with an adaptive government.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 23

Classification and Topics

• Classification: Wirtschaft ; Monetary Policy ; Central Banks and Their Policies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cho, In-Koo ; Sargent, Thomas J.
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/152457
• Last update: 10.03.2025, 11:44 AM CET