This paper proposes the evaluation of the New Keynesian Phillips Curve (NKPC) under a new learning mechanism where VAR learning dynamics is combined with the idea of testing the validity of the forward-looking model of inflation dynamics. The key assumption is that agents’ perceived law of...

Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective forecasting models in real time. This approach provides a stability test for...

We analyse some practical aspects of implementing adaptive learning in the context of forward-looking linear models. In particular, we focus on how to set initial conditions for three popular algorithms, namely recursive least squares, stochastic gradient and constant gain learning. We propose...

This study sheds new light on the question of whether or not sentiment surveys, and the expectations derived from them, are relevant to forecasting economic growth and stock returns, and whether they contain information that is orthogonal to macroeconomic and financial data. I examine 16...

We provide an analytical approach that facilitates understanding the bifurcation mechanism of a wide class of economic models involving spatial agglomeration of economic activities. The proposed method overcomes the limitations of the Turing (1952) approach that has been used to analyze the...

Macro Models are a series of free Apps available in App Store, and they work with Ipads. Each App simulates a specific macroeconomic model and presents both the static and the dynamic results. The first five Apps developed and published are: the Income-Expenditure model in three versions (I, II...

This article proposes that Okun’s Law is an empirical relationship between employment and production which, in the United States, correlates to the relationship between the radius of a circle and one-half of its circumference i.e. numerically, the ratio 1 : .. This requires two new sets of...

Out-of-sample forecasting tests of DSGE models against time-series benchmarks such as an unrestricted VAR are increasingly used to check a) the specification b) the forecasting capacity of these models. We carry out a Monte Carlo experiment on a widely-used DSGE model to investigate the power of...

Forward-looking RE models such as the popular New Keynesian (NK) model do not provide a unique prediction about how the model economy behaves. We need some mechanism that ensures determinacy. McCallum (2011) says it is not needed because models are learnable only with the determinate solution...

This study examines the expectational stability of the rational expectations equilibria (REE) under alternative Taylor rules when trend inflation is non-zero. We find that when trend inflation is high, the REE is likely to be expectationally unstable. This result holds true regardless of the...