Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152457
Authors: 
Cho, In-Koo
Sargent, Thomas J.
Year of Publication: 
2000
Series/Report no.: 
ECB Working Paper 23
Abstract: 
Mean dynamics govern convergence to rational expectations equilibria of self-referential systems under least squares learning. We highlight escape dynamics that propel away from a rational expectations equilibrium under fixed-gain recursive learning schemes. These learning schemes discount past observations. In a model with a unique self-confirming equilibrium, we show that the destination of the escape dynamics is an outcome associated with government discovery of too strong a version of the natural rate hypothesis. That destination is not sustainable as a self-confirming equilibrium but is visited recurrently. The escape route dynamics cause recurrent outcomes close to the Ramsey (commitment) inflation rate in a model with an adaptive government.
JEL: 
E3
E52
E58
Document Type: 
Working Paper

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