A Monetary Model of Growth with Limited Foresight *

Francesco Magris and Daria Onori ()
Additional contact information
Daria Onori: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne

Working Papers from HAL

Abstract: Rational expectations are often questioned in light of their overly demanding assumptions. Thus, an increasing literature introduces some form of bounded rationality.In this paper, we study real and monetary growth models with agents endowed with limited foresight. Accordingly, in each period, economic plans extend only for a limited number of periods and are reformulated in each subsequent date. We show that limited foresight may lead to capital under-investment and be thus growth-detrimental. However, by relaxing progressively myopia, the economy converges to the Perfect Foresight equilibrium. We prove the existence of a monetary Balanced Growth Path (BGP ) beside the non monetary one and compare it with the outcome obtained under perfect foresight. We also perform a stability analysis and show that the monetary BGP is globally unstable (stable) while the non monetary one is globally stable (unstable) when money is positive (negative). Finally, we identify the optimal monetary policy maximizing welfare. Limited foresight, in contrast to a widespread literature, thus restores monetary equilibria even in absence of limited participation, financial frictions and borrowing constraints.

Keywords: JEL Classification: C61 C62 E40 O42 Growth Limited foresight Money Monetary policy Myopic behavior; JEL Classification: C61; C62; E40; O42; Growth; Limited foresight; Money; Monetary policy; Myopic behavior (search for similar items in EconPapers)
Date: 2024-09-19
Note: View the original document on HAL open archive server: https://univ-orleans.hal.science/hal-04702218v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://univ-orleans.hal.science/hal-04702218v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04702218

DOI: 10.5281/zenodo.13767455

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().