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lectures/cagan_ree.md

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@@ -46,7 +46,7 @@ While Cagan didn't use that "rational expectations" version of the model, Thoma
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Some of our quantitative experiments with the model are designed to illustrate how the fiscal theory explains the abrupt end of those big inflations.
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In those experiments, we'll encounter an instance of a ``velocity dividend'' that has sometimes accompanied successful inflation stabilization programs.
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In those experiments, we'll encounter an instance of a ''velocity dividend'' that has sometimes accompanied successful inflation stabilization programs.
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principles
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To facilitate using linear matrix algebra as our main mathematical tool, we'll use a finite horizon version of the model.
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```{code-cell} ipython3
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# Create the rational expectation version of Cagan model in finite time
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CagamREE = namedtuple("ConsumptionSmoothing",
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CaganREE = namedtuple("ConsumptionSmoothing",
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["m0", "T", "μ_seq", "α", "δ", "π_end"])
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def create_cagan_model(m0, α, T, μ_seq):
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δ = α/(1 + α)
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π_end = μ_seq[-1] # compute terminal expected inflation
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return CagamREE(m0, T, μ_seq, α, δ, π_end)
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return CaganREE(m0, T, μ_seq, α, δ, π_end)
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```
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+++ {"user_expressions": []}

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