Anticipated Fiscal Policy and Adaptive Learning

Evans, George W.; Honkapohja, Seppo; Mitra, Kaushik

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Anticipated Fiscal Policy and Adaptive Learning

CEPR Discussion Paper No. DP6216

47 Pages Posted: 22 May 2008

See all articles by George W. Evans

George W. Evans

University of Oregon - Department of Economics; University of St. Andrews - School of Economics and Finance

Seppo Honkapohja

Centre for Economic Policy Research (CEPR); Aalto University School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Aalto University - School of Business

Kaushik Mitra

University of St. Andrews - School of Economics and Finance

There are 2 versions of this paper

Date Written: March 2007

Abstract

We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two well-known set-ups, an endowment economy and the Ramsey model. In our set-up there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks.

Keywords: Expectations, Ramsey model, taxation

JEL Classification: D84, E21, E43, E62

Suggested Citation: Suggested Citation

Evans, George W. and Honkapohja, Seppo and Honkapohja, Seppo and Mitra, Kaushik, Anticipated Fiscal Policy and Adaptive Learning (March 2007). CEPR Discussion Paper No. DP6216, Available at SSRN: https://ssrn.com/abstract=1135458