Disequilibrium dynamics with monetarist price expectations |
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Authors: | Seppo Honkapohja Takatoshi Ito |
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Institution: | Yrjö Jahnsson Foundation, Helsinki, Finland;University of Helsinki, Helsinki, Finland;University of Minnesota, Minneapolis, MN 55455, USA |
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Abstract: | In this note we sketch the main features of the dynamic evolution of a rationed equilibrium macroeconomic model in which prices and wages respond to excess demands and inflation expectations, and the money stock is endogenous. We postulate monetarist inflation expectations, i.e., expected inflation is assumed to be equal to the current percentage rate of change of the money stock. If the system is stable, monetarist inflation expectations are asymptotically rational. |
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