The Conquest of American Inflation / Edition 1

The Conquest of American Inflation / Edition 1

1.0 1
by Thomas J. Sargent
     
 

ISBN-10: 0691004145

ISBN-13: 9780691004143

Pub. Date: 01/11/1999

Publisher: Princeton University Press

In the past fifteen years, many advanced countries have conquered inflation. History reveals, however, that it has been conquered before and returned. In The Conquest of American Inflation, Thomas J. Sargent presents a groundbreaking analysis of the rise and fall of U.S. inflation after 1960. He examines two broad explanations for the behavior of inflation and…  See more details below

Overview

In the past fifteen years, many advanced countries have conquered inflation. History reveals, however, that it has been conquered before and returned. In The Conquest of American Inflation, Thomas J. Sargent presents a groundbreaking analysis of the rise and fall of U.S. inflation after 1960. He examines two broad explanations for the behavior of inflation and unemployment in this period: the natural-rate hypothesis joined to the Lucas critique and a more traditional econometric policy evaluation modified to include adaptive expectations and learning. His purpose is not only to determine which is the better account but also to codify for the benefit of the next generation the economic forces that cause inflation.

Synthesizing results from macroeconomics, game theory, control theory, and other fields to extend both adaptive expectations and rational expectations theory, Sargent compellingly describes postwar inflation in terms of drifting coefficients. This book provides an original methodological link between theoretical and policy economics. It will engender much debate and become an indispensable text for academics, graduate students, and professional economists.

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Product Details

ISBN-13:
9780691004143
Publisher:
Princeton University Press
Publication date:
01/11/1999
Pages:
168
Product dimensions:
6.50(w) x 9.45(h) x 0.33(d)

Table of Contents

Prefacexiii
1.The Rise and Fall of U.S. Inflation1
Facts1
Two interpretations1
The triumph of natural-rate theory2
The vindication of econometric policy evaluation3
Readers's guide6
The Lucas critique6
Time-consistency and credible plans6
Adaptive expectations and the Phelps problem7
Equilibrium under misspecification7
Two types of self-confirming equilibria8
Adaptive expectations9
Empirical vindication11
Raw and filtered Data11
Demographic adjustment and drift13
2.Ignoring the Lucas Critique14
The Lucas critique14
Outline14
The appeal to drifting coefficients15
A loose end16
Parameter drift as point of departure17
Relevance of the critique17
Rational expectations models19
3.The Credibility Problem20
Introduction20
One-period economy20
Least squares learning converges to Nash25
More foresight27
Appendix on stochastic approximation28
4.Credible Government Policies31
Perfection31
Historical antecedents33
The method of Abreu-Pearce-Stacchetti35
Examples of recursive SPE38
Infinite repetition of Nash outcome39
Infinite repetition of a better-than-Nash outcome39
Something worse: a stick and carrot strategy41
The worst SPE42
Multiplicity44
Attaining the worst, method 145
Attaining the worst, method 245
Attaining the worst, method 346
Numerical examples46
Interpretations48
Remedies49
5.Adaptive Expectations (1950's)50
Adaptive expectations50
The original Phelps problem50
Phelps problem: general version53
Testing the natural-rate hypothesis55
Disappearance of beliefs as state variable57
Subversion of Phelps's model57
6.Optimal Misspecified Beliefs59
Equilibrium with mistakes59
An experiment in Bray's lab60
Misspecification62
Lessons67
7.Self-Confirming Equilibria68
Two literatures68
Directions of fit68
Imperfect (1970's) rational expectations equilibria69
Self-confirming equilibria69
Objects in Phelps problem69
Elements of self-confirming models70
The actual Phillips curve70
Self-confirmation71
Direction of minimization72
Vanishing parameters73
Self-confirmation under classical direction74
Moment formulas74
Keynesian direction of fit75
Government beliefs and behavior75
Calculation of S76
Special case by hand77
Why not Ramsey?79
Direction of minimization: caution80
Equilibrium computation80
Messages81
Equilibrium with misspecified beliefs81
An erroneous forecasting function82
Approaching Ramsey84
Grounds for optimism86
8.Adaptive Expectations (1990's)87
Least squares adaptation87
Primer on recursive algorithms88
Iteration89
Stochastic approximations90
Mean dynamics90
Constant gain91
Escape routes92
Simplification of action functional93
From computation to adaptation94
Adaptation with the classical identification95
The government's beliefs and behavior95
RLS and the Kalman filter96
Private sector beliefs97
System evolution98
Mean dynamics98
Stochastic approximation99
Adaptation with Keynesian identification101
Government beliefs and behavior101
Technical details102
Simulations102
Classical adaptive simulations103
Relation to equilibria under forecast misspecification110
Simulation with Keynesian adaptation111
Role of discount factor114
Conclusions114
Appendix ARLS and the Kalman filter115
The Kalman filter115
Recursive least squares116
Matching RLS to the Kalman filter117
Initial conditions for simulations118
Appendix BAnticipated utility119
Boiler plate recursive rational expectations model119
Anticipated utility model120
9.Econometric Policy Evaluation122
Introduction122
Likelihood function122
Estimates124
Interpretation127
Appendix on likelihood function128
10.Triumph or Vindication?130
Expectations and the Lucas critique130
Reservations133
Glossary135
References137
Author Index145
Subject Index147

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