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Title: Bounded rationality, heterogeneous beliefs and the evolution of the economy
Author: Soerensen, J. P.
Awarding Body: University of Edinburgh
Current Institution: University of Edinburgh
Date of Award: 1995
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In this thesis I study the implications of the speed of learning in an overlapping generations model. The equilibrium can be altered, for example, by a change in the level of government purchases and this can be financed in various ways. The purpose is to examine the effects on a number of important economic variables including welfare during the learning transition to the new steady state. Chapter 1 contains the introduction. In chapter 2 there is a comparison between an economy in which all agents are fast learners with an economy in which all agents are slow learners. Under certain conditions it is shown that while welfare may initially be higher in an economy with fast learners, this will not continue to be the case during the whole learning transition. After some time, possibly quite early, welfare will be higher in an economy populated by slow learners. This analysis is extended to a model with externalities and coordination failures in chapter 3 and models with random productivity and preference shocks are studied in chapter 4. In chapter 5, I consider the consequences of agents having heterogeneous expectations, i.e. slow and fast agents in the same economy. The analysis considers two issues: (i) under what conditions is convergence of learning guaranteed when there is heterogeneous learning and (ii) how does welfare compare for fast relative to slow learners, when there is a mixture of the two types. The stability analysis extends earlier results in the literature for the homogeneous case. The welfare comparison gives a much more intuitive result. The welfare of the fast agents is higher than the welfare of the slow agents during the entire learning transition. This does not depend on whether one is looking at expansionary or contractionary monetary policy, providing that the economy started in equilibrium.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available