Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts

We modify Samuelson's multiplier-accelerator model to explore the influence of expectations on fluctuations in economic activity. Within our model, the agents use a nonlinear mix of extrapolative and regressive forecast rules to predict the output. Our model is able to mimic some generic features of business cycles. In particular, consumption is procyclical and fluctuates less than output while investment is procyclical and fluctuates more than output.

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Year of publication:	2007
Authors:	Westerhoff, Frank
Published in:	Studies in Nonlinear Dynamics & Econometrics. - Berkeley Electronic Press. - Vol. 10.2007, 4, p. 1324-1324
Publisher:	Berkeley Electronic Press
Subject:	endogenous business cycles \| expectation formation \| bounded rationality \| nonlinearities and chaos \| multiplier-accelerator model \| stylized facts

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Extent:	application/pdf
Type of publication:	Article
Notes:	oai:bepress:
Source:	RePEc - Research Papers in Economics

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