Learning and equilibrium selection in a monetary overlapping generations model with sticky prices

We study adaptive learning in a monetary overlapping generations model with sticky prices and monopolistic competition for the case where learning agents observe current endogenous variables. Observability of current var
We study adaptive learning in a monetary overlapping generations model with sticky prices and monopolistic competition for the case where learning agents observe current endogenous variables. Observability of current variables is essential for informational consistency of the learning setup with the model set up but generates multiple temporary equilibria when prices are flexible and prevents a straightforward construction of the learning dynamics. Sticky prices overcome this problem by avoiding simultaneity between prices and price expectations. Adaptive learning then robustly selects the determinate (monetary) steady state independent from the degree of imperfect competition. The indeterminate (non-monetary) steady state and non-stationary equilibria are never stable. Stability in a deterministic version of the model may differ because perfect foresight equilibria can be the limit of restricted perceptions equilibria of the stochastic economy with vanishing noise and thereby inherit different stability properties. This discontinuity at the zero variance of shocks suggests to analyze learning in stochastic models.
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Metadaten
Author:Klaus Adam
URN:urn:nbn:de:hebis:30-10094
Parent Title (German):CFS working paper series ; 2003, 03
Series (Serial Number):CFS working paper series (2003, 03)
Document Type:Working Paper
Language:English
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:adaptive learning; sticky prices; temporary equilibrium
Note:
Revised version published in: Review of Economic Studies, Vol 70 (4), pp. 887-908, 2003
HeBIS PPN:20540636X
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C62 Existence and Stability Conditions of Equilibrium
D84 Expectations; Speculations
E31 Price Level; Inflation; Deflation
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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