Stochastic Consistent Expectations Equilibria
Recently the notion of consistent expectations equilibria (CEE) was introduced in a non-linear deterministic framework with expectational feedback. Along a CEE the sample mean and sample autocorrelations of realizations of the non-linear system coincide with the mean and autocorrelations corresponding to the linear forecasting rules agents are using. Along a CEE expectations are thus self-fulfilling in a linear statistical sense. In this paper the CEE concept is generalized to a non-linear stochastic framework. A stochastic CEE occurs when the non-linear stochastic system has an invariant measure with mean and (auto)co-variances that coincide with the mean and (auto)co-variances of the linear stochastic process agents believe in. Steady state, 2-cycle as well as chaotic stochastic CEE will be discussed. Convergence of OLS and sample autocorrelation learning to these different CEE will also be discussed. Applications to the cobweb and the OLG model will be given.
Year of publication: |
2001-01-04
|
---|---|
Authors: | Hommes, Cars |
Institutions: | Center for Nonlinear Dynamics in Economics and Finance (CeNDEF), Faculteit Economie en Bedrijfskunde |
Saved in:
Saved in favorites
Similar items by person
-
Success and Failure of Technical Trading Strategies in the Cocoa Futures Market
Griffioen, Gerwin, (2001)
-
Adaptive Beliefs and the volatility of asset prices
Gaunersdorfer, Andrea, (2001)
-
Complex evolutionary systems in behavioral finance
Hommes, C.H., (2008)
- More ...