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Expectations, Learning and Business Cycle Fluctuations

Eusepi, Stefano - 2008

This paper develops a theory of expectations-driven business cycles based on learning. Agents have incomplete knowledge … consumption and leisure. Output volatility is comparable with a rational expectations analysis with a standard deviation of … technology shock that is 20 percent smaller, and has substantially more volatility in investment and hours. Persistence in these …

Persistent link: https://www.econbiz.de/10012464466

The Use of Expected Future Variables in Macroeconometric Models

Fair, Ray C. - 1984

A more sophisticated expectational hypothesis than is traditionally used in the specification of macroeconometric models is tested in this paper. Economic agents are assumed to use a vector of variables Z(t) in forming their expectations for periods t+l and beyond. These expectations may or may...

Persistent link: https://www.econbiz.de/10012477643

Counterfactuals, Forecasts, and Choice-Theoretic Modelling of Policy

Grossman, Herschel I. - 1984

This paper focuses on the problem of formulating an analysis of economic policy that is consistent with rational expectations. Cooley, LeRoy,and Raymon show that the Lucas and Sargent strategy for econometric policy evaluation is itself vulnerable to the logic of the Lucas critique. The present...

Persistent link: https://www.econbiz.de/10012477709

Beliefs, Doubts and Learning : Valuing Economic Risk

Hansen, Lars Peter - 2007

decision theory to characterize when learning or discriminating among competing probability models is challenging. I also use … choice theory under uncertainty to explore the ramifications of model uncertainty and learning in environments in which …

Persistent link: https://www.econbiz.de/10012465708

Are Low Interest Rates Deflationary? A Paradox of Perfect-Foresight Analysis

García-Schmidt, Mariana - 2015

We illustrate a pitfall that can result from the common practice of assessing alternative monetary policies purely by considering the perfect foresight equilibria (PFE) consistent with the proposed rule. In a standard New Keynesian model, such analysis may seem to support the "Neo-Fisherian"...

Persistent link: https://www.econbiz.de/10012457055

Myopia and Discounting

Gabaix, Xavier - 2017

We assume that perfectly patient agents estimate the value of future events by generating noisy, unbiased simulations and combining those signals with priors to form posteriors. These posterior expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream of...

Persistent link: https://www.econbiz.de/10012455427

Pricing Assets in an Economy with Two Types of People

Farmer, Roger E.A. - 2016

This paper constructs a general equilibrium model with two types of people where asset price fluctuations are caused by random shocks to the price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though...

Persistent link: https://www.econbiz.de/10012456447

Wealth and Volatility

Heathcote, Jonathan - 2015

volatility. This paper develops a simple model that can exhibit self-fulfilling fluctuations in the expected path for … unemployment. The novel feature is that the scope for sunspot-driven volatility depends on the level of household wealth. When …

Persistent link: https://www.econbiz.de/10012457673

Long-Run Risks and Financial Markets

Bansal, Ravi - 2007

-varying uncertainty (i.e., volatility) about future economic prospects drive asset prices. These two channels of economic risks can …

Persistent link: https://www.econbiz.de/10012465457

Expectation Traps and Discretion

Chari, V. V. - 1996

-decreasing volatility in output and employment. We refer to the latter type of equilibria as expectation traps. In effect, our paper …

Persistent link: https://www.econbiz.de/10012473315