Impacts of priors on convergence and escapes from Nash inflation

Thomas Sargent and Noah Williams

No 2003-14, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Recent papers have analyzed how adaptive agents may converge to and escape from self-confirming equilibria. All of these papers have imputed to agents a particular prior about drifting coefficients. In the context of a model of monetary policy, this paper analyzes dynamics that govern both convergence and escape under a more general class of priors for the government. The authors characterize how the shape of the prior influences the dynamics in important ways. There are priors for which the E-stability condition is not enough to assure local convergence to a self-confirming equilibrium. Their analysis also tracks down the source of differences in the sustainability of Ramsey inflation encountered in the analyses of Sims (1988) and Chung (1990), on the one hand, and Cho, Williams, and Sargent (2002), on the other.

Keywords: Equilibrium (Economics); Monetary policy; Inflation (Finance); Macroeconomics (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Impacts of Priors on Convergence and Escapes from Nash Inflation (2005)
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