(University of Oregon, Dept of Economics, 2010-08-04) Evans, George W., 1949-; Honkapohja, Seppo, 1951-; Mitra, Kaushik, 1969-
This paper considers the Ricardian Equivalence proposition when
expectations are not rational and are instead formed using adaptive
learning rules. We show that Ricardian Equivalence continues to hold
provided suitable additional conditions on learning dynamics are satisfied.
However, new cases of failure can also emerge under learning. In
particular, for Ricardian Equivalence to obtain, agents’ expectations
must not depend on government’s financial variables under deficit financing.
