Learning rational expectations in a policy game

DOI10.1016/0165-1889(91)90015-SMaRDI QIDQ805487zbMATH OpenOpenAlexFDO

Authors Martin W. Cripps

Publication date 1991

Published in Journal of Economic Dynamics and Control (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/0165-1889(91)90015-s

zbMATH Keywords

learning rational expectations

Mathematics Subject Classification ID

Utility theory (91B16) Economic growth models (91B62) Macroeconomic theory (monetary models, models of taxation) (91B64) Memory and learning in psychology (91E40) History, political science (91F10)

Review text

The author is concerned with the question whether the process of learning rational expectations will have important effects on the time profile of optimal policy. The process of learning rational expectations starts at the beginning of a government's term of office when the public is discovering the government's propensity to create inflationary surprises. Comparing two different types of learning - rational and nonrational learning - the author concludes that if rational learning is assumed there will be low levels of initial inflationary bias in government policy and the government slows the public's learning. If learning is nonrational by applying weighted least squares, there will be a permanently reduced inflationary bias and thus, there will be a reduction in the credible sustainable level of inflation.

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Cites work

• Changes in regime and the term structure. A note
• Credibility and the value of information transmission in a model of monetary policy and inflation
• scientific article; zbMATH DE number 3727971 (Why is no real title available?)
• scientific article; zbMATH DE number 52648 (Why is no real title available?)
• Noncooperative Collusion under Imperfect Price Information
• Rational Expectations and Policy Credibility Following a Change in Regime
• Rational Expectations Equilibria, Learning, and Model Specification

Cited in

(6)

• Are policy variables exogenous? The econometric implications of learning while maximizing
• Simplicity versus optimality: The choice of monetary policy rules when agents must learn
• Learnability and transparency with time inconsistent monetary policy
• Boundedly rational rule learning in a guessing game
• Rational Expectations and Policy Credibility Following a Change in Regime
• Learning non-rational expectations equilibria

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