Learning and Macroeconomics
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Date
2008-07-11
Authors
Honkapohja, Seppo, 1951-
Evans, George W., 1949-
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
Expectations play a central role in modern macroeconomic theories.
The econometric learning approach models economic agents as
forming expectations by estimating and updating forecasting models
in real time. The learning approach provides a stability test for rational
expectations and a selection criterion in models with multiple
equilibria. In addition, learning provides new dynamics if older data
is discounted, models are misspecified or agents choose between competing
models. This paper describes the E-stability principle and the
stochastic approximation tools used to assess equilibria under learning.
Applications of learning to a number of areas are reviewed, including
the design of monetary and fiscal policy, business cycles, self-fulfilling
prophecies, hyperinflation, liquidity traps, and asset prices.
Description
51 p.
Keywords
E-stability, Persistent learning dynamics, Sunspots, Asset pricing, Business cycles, Monetary policy, Stochastic approximation, Least squares