Template-Type: ReDIF-Article 1.0

Author-Name: Martin Guzman 

Author-Workplace-Name: Department of Economics, Brown University 

Title: On the behavior of fiscal policy with costly expectations

Abstract: This paper extends the Talvi and Végh (2005) model on the behavior of fiscal policy, introducing agent-based issues. Like in Talvi and Végh (2005), the theoretical framework is à la Barro (1979), but rational expectations are costly. The agents can choose between two strategies in forming expectations: buying costly rational expectations or freely following the trend. Unlike Talvi and Végh (2005), I show that procyclicality of fiscal policy is not necessarily the government's optimal behavior.

Classification-JEL: E32, E62, H30

Keywords: Optimal fiscal policy, cycles, agent-based economics.
 
Journal: Económica

Pages: 29-44
Volume: LV
Year: 2009
Month: January-December
File-URL: https://revistas.unlp.edu.ar/Economica/article/view/5374/4402
File-Format: Application/pdf
Handle: RePEc:akh:journl:567