Evans, George W.
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Evans, George W., 1949 (University of Oregon, Dept of Economics, October 30, 2010)[more][less]Evans, George W., 1949 20110210T00:57:16Z 20110210T00:57:16Z 20101030 http://hdl.handle.net/1794/10969 25 p. In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed. en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;20106 Stagnation (Economics) Fiscal and monetary policy Deflation trap Stagnation Regime of the New Keynesian Model and Current US Policy Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, July 6, 2009)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20110210T00:50:29Z 20110210T00:50:29Z 20090706 http://hdl.handle.net/1794/10967 32 p. We examine global economic dynamics under infinitehorizon learning in a New Keynesian model in which the interestrate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks pushing interest rates to the zero lower bound, temporary increases in government spending can be used to insulate the economy from deflation traps. en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;20105 Adaptive learning Monetary policy Fiscal policy Zero Interest Rate Lower Bound Expectations, Deflation Traps and Macroeconomic Policy Working Paper

Branch, William A.; Evans, George W., 1949 (University of Oregon, Dept of Economics, April 30, 2010)[more][less]Branch, William A. Evans, George W., 1949 20110210T00:18:15Z 20110210T00:18:15Z 20100430 http://hdl.handle.net/1794/10965 25, 10 p. : ill. (some col.) This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expec tations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the bestperforming statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary policy. en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;20104 Heterogeneous expectations Monetary policy Multiple equilibria Adaptive learning Monetary Policy and Heterogeneous Expectations Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951; Mitra, Kaushik, 1969 (University of Oregon, Dept of Economics, August 4, 2010)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 Mitra, Kaushik, 1969 20110209T23:29:32Z 20110209T23:29:32Z 20100804 http://hdl.handle.net/1794/10961 28 p. This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satisfied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agents’ expectations must not depend on government’s financial variables under deficit financing. en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;20103 Taxation Expectations Ramsey model Ricardian equivalence Does Ricardian Equivalence Hold When Expectations are not Rational? Working Paper

Honkapohja, Seppo, 1951; Evans, George W., 1949 (University of Oregon, Dept of Economics, July 11, 2008)[more][less]Honkapohja, Seppo, 1951 Evans, George W., 1949 20090109T17:24:10Z 20090109T17:24:10Z 20080711 http://hdl.handle.net/1794/8264 51 p. 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 Estability 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, selffulfilling prophecies, hyperinflation, liquidity traps, and asset prices. en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;20083 Estability Persistent learning dynamics Sunspots Asset prices Business cycles Monetary policy Stochastic approximation Least squares Learning and Macroeconomics Working Paper

Branch, William A.; Evans, George W., 1949 (University of Oregon, Dept of Economics, January 31, 2008)[more][less]Branch, William A. Evans, George W., 1949 20080320T16:40:42Z 20080320T16:40:42Z 20080131 http://hdl.handle.net/1794/5776 42 p. This paper demonstrates that an asset pricing model with leastsquares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are riskaverse they generate forecasts of the conditional variance of a stock’s return. Recursive updating of the conditional variance and expected return implies two mechanisms through which learning impacts stock prices: occasional shocks may lead agents to lower their risk estimate and increase their expected return, thereby triggering a bubble; along a bubble path recursive estimates of risk will increase and crash the bubble. 3742112 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20081 Risk Asset pricing Bubbles Adaptive learning Stocks  Prices Learning about Risk and Return: A Simple Model of Bubbles and Crashes Working Paper

Evans, George W., 1949; Guse, Eran A. (Eran Alan), 1975; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, June 5, 2007)[more][less]Evans, George W., 1949 Guse, Eran A. (Eran Alan), 1975 Honkapohja, Seppo, 1951 20071024T19:34:44Z 20071024T19:34:44Z 20070605 http://hdl.handle.net/1794/5131 34 p. We examine global economic dynamics under learning in a New Keynesian model in which the interestrate rule is subject to the zero lower bound. Under normal monetary and fiscal policy, the intended steady state is locally but not globally stable. Large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output. To avoid this outcome we recommend augmenting normal policies with aggressive monetary and fiscal policy that guarantee a lower bound on inflation. In contrast, policies geared toward ensuring an output lower bound are insufficient for avoiding deflationary spirals. 792892 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20079 Adaptive learning Monetary policy Fiscal policy Zero interest rate lower bound Indeterminacy Liquidity Traps, Learning and Stagnation Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951; Mitra, Kaushik (University of Oregon, Dept of Economics, February 18, 2007)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 Mitra, Kaushik 20070306T01:04:17Z 20070306T01:04:17Z 20070218 http://hdl.handle.net/1794/3912 44 p. We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two wellknown setups, an endowment economy and the Ramsey model. In our setup there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks. Financial support from National Science Foundation Grant No. SES0617859 and ESRC grant RES000231152 is gratefully acknowledged. 389799 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20075 Taxation Expectations Ramsey model Anticipated Fiscal Policy and Adaptive Learning Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept of Economics, January 1, 2007)[more][less]Evans, George W., 1949 McGough, Bruce 20070219T19:00:47Z 20070219T19:00:47Z 20070101 http://hdl.handle.net/1794/3871 8 p. By endowing his agents with simple forecasting models, or representations, Woodford (1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodford (1990). We find that if finite state Markov sunspots are stable under learning then all sunspots are stable under learning, provided common factor representations are used. 122477 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20071 Indeterminacy Sunspots Equilibria Estability Representations and Sunspot Stability Working Paper

Branch, William A.; Evans, George W., 1949 (University of Oregon, Dept of Economics, November 13, 2006)[more][less]Branch, William A. Evans, George W., 1949 20070116T17:29:00Z 20070116T17:29:00Z 20061113 http://hdl.handle.net/1794/3797 40 p. This paper advocates a theory of expectation formation that incorporates many of the central motivations of behavioral finance theory while retaining much of the discipline of the rational expectations approach. We provide a framework in which agents, in an asset pricing model, underparameterize their forecasting model in a spirit similar to Hong, Stein, and Yu (2005) and Barberis, Shleifer, and Vishny (1998), except that the parameters of the forecasting model, and the choice of predictor, are determined jointly in equilibrium. We show that multiple equilibria can exist even if agents choose only models that maximize (riskadjusted) expected profits. A realtime learning formulation yields endogenous switching between equilibria. We demonstrate that a realtime learning version of the model, calibrated to U.S. stock data, is capable of reproducing many of the salient empirical regularities in excess return dynamics such as under/overreaction, persistence, and volatility clustering. 364168 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200614 Asset pricing Misspecification Behavioral finance Predictability Adaptive learning Asset Return Dynamics and Learning Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept of Economics, October 9, 2006)[more][less]Evans, George W., 1949 McGough, Bruce 20061121T17:35:06Z 20061121T17:35:06Z 20061009 http://hdl.handle.net/1794/3632 45 p. Revision of: Stable noisy Kstate Markov Sunspots. We consider a linear univariate rational expectations model, with a predetermined variable, and study existence and stability of solutions driven by an extraneous finitestate Markov process. We show that when the model is indeterminate there exists a new class of kstate dependent sunspot equilibria in addition to the kstate sunspot equilibria (kSSEs) already known to exist in part of the indeterminacy region. The new type of equilibria, which we call ergodic kSSEs, are driven by a finitestate sunspot but can have an infinite range of values even in the nonstochastic model. Stability under econometric learning is analyzed using representations that nest both types of equilibria. 2SSEs and ergodic 2SSEs are learnable for parameters in proper subsets of the regions of their existence. Our results extend to models with intrinsic random shocks. 761525 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200613 Markov sunspots Learning Indeterminacy Expectational stability Stable FiniteState Markov Sunspots Working Paper

Chakraborty, Avik, 1975; Evans, George W., 1949 (University of Oregon, Dept of Economics, August 28, 2006)[more][less]Chakraborty, Avik, 1975 Evans, George W., 1949 20061002T21:14:10Z 20061002T21:14:10Z 20060828 http://hdl.handle.net/1794/3425 38 p. June 30, 2006. Revised August 28, 2006. Under rational expectations and risk neutrality the linear projection of exchange rate change on the forward premium has a unit coefficient. However, empirical estimates of this coefficient are significantly less than one and often negative. We investigate whether replacing rational expectations by discounted least squares (or “perpetual”) learning can explain the result. We calculate the asymptotic bias under perpetual learning and show that there is a negative bias that becomes strongest when the fundamentals are strongly persistent, i.e. close to a random walk. Simulations confirm that perpetual learning is potentially able to explain the forward premium puzzle. 767489 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20068 Can Perpetual Learning Explain the Forward Premium Puzzle? Working Paper

Branch, William A.; Evans, George W., 1949; Carlson, John; McGough, Bruce (University of Oregon, Dept of Economics, June 22, 2006)[more][less]Branch, William A. Evans, George W., 1949 Carlson, John McGough, Bruce 20061002T20:00:03Z 20061002T20:00:03Z 20060622 http://hdl.handle.net/1794/3423 11 p. This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker’s preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower. 179460 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20066 Optimal monetary policy Bounded rationality Economic stabilization Adaptive learning Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept of Economics, June 3, 2006)[more][less]Evans, George W., 1949 McGough, Bruce 20061002T19:53:24Z 20061002T19:53:24Z 20060603 http://hdl.handle.net/1794/3422 36 p. We consider optimal monetary policy in New Keynesian models with inertia. First order conditions, which we call the MJBalternative, are found to improve upon the timeless perspective. The MJBalternative is shown to be the best possible in the sense that it minimizes policymakers’ unconditional expected loss, and further, it is numerically found to offer significant improvement over the timeless perspective. Implementation of the MJBalternative is considered via construction of interestrate rules that are consistent with its associated unique equilibrium. Following Evans and Honkapohja (2004), an expectations based rule is derived that always yields a determinate model and an Estable equilibrium. Further, the “policy manifold” of all interestrate rules consistent with the MJBalternative is classified, and open regions of this manifold are shown to correspond to indeterminate models and unstable equilibria. 593049 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20065 Monetary policy Taylor rules Indeterminacy Estability Implementing Optimal Monetary Policy in NewKeynesian Models with Inertia Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, September 19, 2005)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20051215T16:42:42Z 20051215T16:42:42Z 20050919 http://hdl.handle.net/1794/1927 35 p. We study the properties of generalized stochastic gradient (GSG) learning in forwardlooking models. We examine how the conditions for stability of standard stochastic gradient (SG) learning both differ from and are related to Estability, which governs stability under least squares learning. SG algorithms are sensitive to units of measurement and we show that there is a transformation of variables for which Estability governs SG stability. GSG algorithms with constant gain have a deeper justification in terms of parameter drift, robustness and risk sensitivity. 419658 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200517 Adaptive learning Estability Recursive least squares Robust estimation Generalized Stochastic Gradient Learning Working Paper

Branch, William A.; Evans, George W., 1949 (University of Oregon, Dept of Economics, October 18, 2005)[more][less]Branch, William A. Evans, George W., 1949 20051215T20:01:06Z 20051215T20:01:06Z 20051018 http://hdl.handle.net/1794/1960 41 p. This paper identifies two channels through which the economy can generate endogenous inflation and output volatility, an empirical regularity, by introducing model uncertainty into a Lucastype monetary model. The equilibrium path of inflation depends on agents' expectations and a vector of exogenous random variables. Following Branch and Evans (2004) agents are assumed to underparameterize their forecasting models. A Misspecification Equilibrium arises when beliefs are optimal given the misspecification and predictor proportions based on relative forecast performance. We show that there may exist multiple Misspecification Equilibria, a subset of which are stable under least squares learning and dynamic predictor selection. The dual channels of least squares parameter updating and dynamic predictor selection combine to generate regime switching and endogenous volatility. 473672 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200521 Lucas model Model uncertainty Adaptive learning Rational expectations (Economic theory) Volatility Model Uncertainty and Endogenous Volatility Working Paper

Bullard, James; Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, September 17, 2005)[more][less]Bullard, James Evans, George W., 1949 Honkapohja, Seppo, 1951 20051214T19:30:45Z 20051214T19:30:45Z 20050917 http://hdl.handle.net/1794/1925 54 p. We study how the use of judgement or "addfactors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which new phenomena, which we call exuberance equilibria, can exist in standard macroeconomic environments. Examples include a simple asset pricing model and the New Keynesian monetary policy framework. Inclusion of judgement in forecasts can lead to selffulfilling fluctuations, but without the requirement that the underlying rational expectations equilibrium is locally indeterminate. We suggest ways in which policymakers might avoid unintended outcomes by adjusting policy to minimize the risk of exuberance equilibria. 792798 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200515 Learning Expectations Excess volatility Bounded rationality Monetary policy NearRational Exuberance Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept of Economics, May 19, 2005)[more][less]Evans, George W., 1949 McGough, Bruce 20050902T23:24:42Z 20050902T23:24:42Z 20050519 http://hdl.handle.net/1794/1312 35 p. We show that if policymakers compute the optimal unconstrained interestrate rule within a Taylortype class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibration may be indeterminate or unstable under learning under a different calibration. We advocate a procedure in which policymakers restrict attention to rules constrained to lie in the determinate learnable region for all plausible calibrations, and that minimize the expected loss, computed using structural parameter priors, subject to this constraint. 679684 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200509 Monetary policy Taylor rules Indeterminacy Learning Instability Parameter uncertainty Robust rules Optimal Constrained Interestrate Rules Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, April 6, 2005)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20050902T23:14:40Z 20050902T23:14:40Z 20050406 http://hdl.handle.net/1794/1309 22 p. 20020527, Revised 20050406 This is a revised and shortened version of Working Paper 200211. Commitment in monetary policy leads to equilibria that are superior to those from optimal discretionary policies. A number of interest rate reaction functions and instrument rules have been proposed to implement or approximate commitment policy. We assess these rules in terms of whether they lead to an RE equilibrium that is both locally determinate and stable under adaptive learning by private agents. A reaction function that appropriately depends explicitly on private expectations performs particularly well on both counts. 284674 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200511 Commitment Interest rate setting Adaptive learning Stability Determinacy Monetary Policy, Expectations and Commitment Working Paper

Branch, William A.; Carlson, John; Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept of Economics, December 7, 2004)[more][less]Branch, William A. Carlson, John Evans, George W., 1949 McGough, Bruce 20050322T23:14:05Z 20050322T23:14:05Z 20041207 http://hdl.handle.net/1794/662 52 p. This paper addresses the outputprice volatility puzzle by studying the interaction of optimal monetary policy and agents' beliefs. We assume that agents choose their information acquisition rate by minimizing a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of policy activism directly increases output volatility, it indirectly anchors expectations, which decreases output volatility. If the indirect effect dominates then the usual tradeoff between output and price volatility breaks down. This provides a potential explanation for the "Great Moderation" that began in the 1980's. 531074 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 200419 Expectations Optimal monetary policy Bounded rationality Economic stabilization Adaptive learning Monetary Policy, Endogenous Inattention, and the Volatility Tradeoff Working Paper