 Inflation expectations and macroeconomic dynamics: The case of rational versus extrapolative expectationsMarji Lines and Frank Westerhoff Journal of Economic Dynamics and Control, 2010, vol. 34, issue 2, 246-257 Abstract: The motivation of this paper is to understand the effects of coupling a macroeconomic model of inflation rate dynamics, relying on an aggregate expectation, to a heterogeneous expectations framework. A standard model composed of Okun's law, an expectations-augmented Phillips curve and an aggregate demand relation is extended to allow agents to select between trend-following and rational expectations to predict the future inflation rate. Using a mixture of analytical and numerical tools we investigate the model's dynamics and discuss the conditions under which the extended model leads to endogenous fluctuations in macroeconomic variables. Some preliminary results are offered for the case in which a Taylor-like monetary policy rule is included in the model. Keywords: Heterogeneous; expectations; Expectation; formation; Dynamic; macroeconomics; Okun's; law; and; Phillips; curve; Nonlinearities; and; chaos; Bifurcations; Intermittency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:2:p:246-257 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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