Escaping nash inflation

In Koo Cho; Noah Williams; Thomas J. Sargent

doi:10.1111/1467-937X.00196

Escaping nash inflation

In Koo Cho, Noah Williams, Thomas J. Sargent

Research output: Contribution to journal › Article › peer-review

Abstract

An ordinary differential equation (ODE) gives the mean dynamics that govern the convergence to self-confirming equilibria of self-referential systems under discounted least squares learning. Another ODE governs escape dynamics that recurrently propel away from a self-confirming equilibrium. In a model with a unique self-confirming equilibrium, the escape dynamics make the government discover too strong a version of the natural rate hypothesis. The escape route dynamics cause recurrent outcomes close to the Ramsey (commitment) inflation rate in a model with an adaptive government.

Original language	English (US)
Pages (from-to)	1-40
Number of pages	40
Journal	Review of Economic Studies
Volume	69
Issue number	1
DOIs	https://doi.org/10.1111/1467-937X.00196
State	Published - 2002

ASJC Scopus subject areas

Economics and Econometrics

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