The financial liberalization in the four Nordic countries (Denmark, Finland, Norway, and Sweden) that took place mostly in the 1980s led to a major financial crisis in three of those countries. The crises in Finland, Norway, and Sweden are among the deepest financial crises in advanced market...

We study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose...

Abstract We examine stability under learning of sunspot equilibria in Real Business Cycle type models with indeterminacies. Our analysis emphasizes the importance of examining alternative representations of sunspot solutions. A general bivariate reduced form contains parameter regions in which...

For U.S. data over 1950-85 the stochastic components of GNP growth and the unemployment rate appear to be stationary, and there is substantial feedback between these variables. The unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the...

Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the...

Quarterly measures of U.K. labor market sectoral imbalance are computed using industrial and regional data. Cyclically corrected measures are used to examine the extent to which changes in sectoral imbalance affect the position of the unemployment-vacancy rule curve. The substantial increase in...

The potential of monetary policy to affect the natural rate of unemployment is demonstrated for a disaggregated macroeconomic model in which it takes time for labor markets to eliminate excess supplies resulting from stochastic shocks. The effect of aggregate output variability on the natural...

A striking implication of the replacement of adaptive expectations by Rational Expectations was the "Lucas Critique," which showed that expectation parameters, and endogenous variable dynamics, depend on policy parameters. We reconsider this issue from the vantage point of bounded rationality....

The authors establish a framework wherein agents make expectation-revision decisions subject to a specified calculation technology and preferences over forecast errors. The technology endows agents with correctly specified economic models, but the cost of expectation calculation using these...