Work

Escaping Nash Inflation

Year: 2002

Type: article

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 selfconfirming 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. “If an unlikely event occurs, it is very likely to occur in the most likly way.” Michael Harrison

Source: The Review of Economic Studies

DOI: 10.1111/1467-937x.00196

Authors: In-Koo Cho, Noah Williams, Thomas J. Sargent

Institutions: University of Illinois Urbana-Champaign, University of Illinois System, Princeton University, Stanford University

Language: English

Topic: Economic theories and models

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3124614318

FWCI: 30.92

Cites:

Cited by: 210

Related to: 10