Policy and, yes,
adaptive expectations could shift the curve.
Lastly, the few dynamic models currently available in the undergraduate curriculum focus exclusively on
adaptive expectations for price setting.
They find that
adaptive expectations have been one of the key determinants of inflation in Pakistan over the decades as well as in the period of 2005-06.
Later refinements by Mordecai Ezekiel, an agricultural economist working for the US government, linked price cycles to delays in adjusting production in response to changes in demand and prices (supply lags) coupled with expectations about future prices based on current and past prices (
adaptive expectations).
The interest in the study of price dynamics has led Hommes [3] to extend the discrete time cobweb model by introducing
adaptive expectations (
Adaptive expectations have been introduced in the original cobweb model by Nerlove [10].) and nonlinear supply and demand curves.
Whatever the central bank's motivations, its attempt to lower the unemployment rate below [u.sub.n] is immediately self-defeating if the public has rational expectations and ultimately self-defeating under
adaptive expectations. This self-defeating character of the Kydland-Prescott result highlights an asymmetry in the formulation of the problem.
They also prompted speculation over the existence of a "natural" rate of employment and theories of
adaptive expectations and inflation acceleration.
Further, hypothesis tests on statistical models implied by conventional
adaptive expectations do not suggest the prevalence of such behavior in the data.