Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211922 
Year of Publication: 
2002
Series/Report no.: 
Bank of Finland Discussion Papers No. 18/2002
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We investigate both the rational explosive inflation paths studied by McCallum (2001) and the classification of fiscal and monetary policies proposed by Leeper (1991) for stability under learning of rational expectations equilibria (REE).Our first result is that the fiscalist REE in the model of McCallum (2001) is not locally stable under learning.By contrast, in the setting of Leeper (1991), different possibilities can obtain.We find, in particular, that there are parameter domains for which the fiscal theory solution - in which fiscal variables affect the price level - can be a stable outcome under learning.For other parameter domains, the monetarist solution is the stable equilibrium.
Subjects: 
inflation
expectations
fiscal and monetary policy
explosive price paths
JEL: 
E52
E31
D84
Persistent Identifier of the first edition: 
ISBN: 
951-686-797-9
Document Type: 
Working Paper

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