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) |
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Pages (from-to) | 1-40 |
Number of pages | 40 |
Journal | Review of Economic Studies |
Volume | 69 |
Issue number | 1 |
DOIs | |
State | Published - 2002 |
ASJC Scopus subject areas
- Economics and Econometrics