Working Paper: CEPR ID: DP291
Authors: Neil Rankin
Abstract: A monetary overlapping generations model with oligopolistic imperfect competition is constructed. In general, output and employment are below their full employment levels. Three alternative expectations hypotheses are used - 'adaptive', 'monetarist' and 'pure rational' - all of which ensure no expectations errors in the steady state. All three lead to different steady states, with contrasting output responses to the rate of monetary growth, despite constraining expectations to be 'rational' in the steady state. With imperfect competition of this type, rational expectations steady states themselves, and not just transition paths to the steady state, are dependent on the 'learning' process by which expectations are form.
Keywords: imperfect competition; expectations; monetary policy
JEL Codes: 023
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary expansion under adaptive expectations (E19) | Steady-state output and employment (E23) |
| Monetary policy under monetarist expectations (E49) | Ineffectiveness of monetary policy (E49) |
| Learning process of expectations formation (D84) | Steady-state outcomes (C62) |
| Elasticity of expectations (D84) | Monetary policy effectiveness (E52) |