Abstract
An ordinary differential equation (ODE) gives the mean dynamics that govern the convergence to self-confirming equilibria of self-referential systems under discounted least squares learning. Another ODE governs escape dynamics that recurrently propel away from a selfconfirming equilibrium. In a model with a unique self-confirming equilibrium, the escape dynamics make the government discover too strong a version of the natural rate hypothesis. The escape route dynamics cause recurrent outcomes close to the Ramsey (commitment) inflation rate in a model with an adaptive government. “If an unlikely event occurs, it is very likely to occur in the most likly way.” Michael Harrison
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
