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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

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

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

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; McGough, Bruce (University of Oregon, Dept. of Economics, March 29, 2004)[more][less]Evans, George W., 1949 McGough, Bruce 20041020T19:56:30Z 20041020T19:56:30Z 20040329 http://hdl.handle.net/1794/236 9 p. We examine existence and stability under learning of sunspot equilibria in a New Keynesian model incorporating inertia. Indeterminacy remains prevalent, stable sunspots abound, and inertia in IS and AS relations do not significantly impact the policy region containing stable sunspots. National Science Foundation, Grant No. 0136848. 174859 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20044 Monetary policy Sunspots Learning Stability Monetary Policy and Stable Indeterminacy with Inertia 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

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

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, May 22, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030815T20:46:30Z 20030815T20:46:30Z 20020522 http://hdl.handle.net/1794/95 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 approxmiate commitment policy. We assess these optimal reaction functions and instrument 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 well on both counts. 568320 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200211 Determinacy Stability Adaptive learning Interest rate setting Commitment Microeconomics Macroeconomics Monetary policy (Targets, instruments, and effects) Monetary policy, expectations and commitment Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept. of Economics, October 11, 2003)[more][less]Evans, George W., 1949 McGough, Bruce 20031211T19:18:28Z 20031211T19:18:28Z 20031011 http://hdl.handle.net/1794/124 The development of tractable forward looking models of monetary policy has lead to an explosion of research on the implications of adopting Taylortype interest rate rules. Indeterminacies have been found to arise for some specifications of the interest rate rule, raising the possibility of increased economic fluctuations due to a dependence of expectations on extraneous sunspots. Separately, recent work by a number of authors has shown that sunspot equilibria previously thought to be unstable under private agent learning can in some cases be stable when the observed sunspot has a suitable time series structure. In this paper we generalize the common factor technique, used in this analysis, to examine standard monetary models that combine forward looking expectations and predetermined variables. We consider a variety of specifications that incorporate both lagged and expected inflation in the Phillips Curve, and both expected and inertial elements in the policy rule. We find that some policy rules can indeed lead to learnable sunspot solutions and we investigate the conditions under which this phenomenon arises. 1,097,683 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200334 Macroeconomics and monetary economics Search, learning, and information Macroeconomics and monetary economics Microeconomics Monetary policy (Central banking, and the supply of money and credit) Monetary policy (Targets, instruments, and effects) Prices, business fluctuations, and cycles Business fluctuations Cycles Information and uncertainty Expectations Speculations Monetary policy, indeterminacy and learning 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 30, 2003)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20031211T19:40:09Z 20031211T19:40:09Z 20030430 http://hdl.handle.net/1794/125 We consider inflation and government debt dynamics when monetary policy employs a global interest rate rule and private agents forecast using adaptive learning. Because of the zero lower bound on interest rates, active interest rate rules are known to imply the existence of a second, low inflation steady state, below the target inflation rate. Under adaptive learning dynamics we find the additional possibility of a liquidity trap, in which the economy slips below this low inflation steady state and is driven to an even lower inflation floor that is supported by a switch to an aggressive money supply rule. Fiscal policy alone cannot push the economy out of the liquidity trap. However, raising the threshold at which the money supply rule is employed can dislodge the economy from the liquidity trap and ensure a return to the target equilibrium. 787,053 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200333. Macroeconomics Monetary policy Banks and banking, Central Monetary economics Finance, Public Macroeconomic policy Comparative or joint analysis of fiscal and monetary policy Stabilization Central banking Bank loans Monetary policy (Targets, instruments, and effects) Credit Policy Interaction, Expectations and the Liquidity Trap Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, August 3, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030815T21:15:41Z 20030815T21:15:41Z 20020803 http://hdl.handle.net/1794/101 We investigate both the rational explosive inflation paths studied by (McCallum 2001), and the classification of fiscal and monetary polices proposed by (Leeper 1991), for stability under learning of the rational expectations equilibria (REE). Our first result is that the fiscalist REE in the model of (McCallum 2001) is not locally stable under learning. In contrast, in the setting of (Leeper 1991), different possibilities can arise. We find, in particular, that there are parameter domains for which the fiscal theory solution, in which fiscal variables affect the price level, can be a stable outcome under learning. However, for other parameter domains the monetarist solution is instead the stable equilibrium. 417792 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200217 Explosive price paths Fiscal and monetary policy Expectations Inflation (Finance) Microeconomics Macroeconomics Policy Interaction, Learning and the Fiscal Theory of Prices 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, February 1, 2005)[more][less]Branch, William A. Evans, George W., 1949 20050322T22:26:23Z 20050322T22:26:23Z 20050201 http://hdl.handle.net/1794/654 10 p. We compare the performance of alternative recursive forecasting models. A simple constant gain algorithm, used widely in the learning literature, both forecasts well out of sample and also provides the best fit to the Survey of Professional Forecasters. 252245 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers ; 20053 Constant gain Recursive learning Expectations A Simple Recursive Forecasting Model 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

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept. of Economics, July 18, 2002)[more][less]Evans, George W., 1949 McGough, Bruce 20030815T21:23:22Z 20030815T21:23:22Z 20020718 http://hdl.handle.net/1794/103 We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and consider solutions driven by an extraneous finite state Markov process as well as by the fundamental noise. We obtain conditions for existence of noisy kstate sunspot equilibria (noisy kSSEs) and, for the case k=2, of noisy kstate dependent sunspot equilibria (noisy k*SDSs). k*SDSs are driven by a finite stable sunspot but have an infinite range of values even in the nonstochastic model. Stability under econometric learning is analyzed using representations that nest both types of solution. For the case k=2, we find that noisy 2SSEs and noisy 2*SDSs are learnable for parameters in proper subsets of the regions of their existence. 759808 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200219 Economics Sunspots Stable Noisy Kstate Markov Sunspots Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951; Marimon, Ramon, 1953 (University of Oregon, Dept. of Economics, October 25, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 Marimon, Ramon, 1953 20030812T20:41:49Z 20030812T20:41:49Z 20021025 http://hdl.handle.net/1794/72 We develop a monetary model with flexible supply of labor, cash in advance constraints and government spending financed by seignorage. This model has two regimes. One regime is conventional with two steady states. The other regime has a unique steady state which can be determinate or indeterminate. In the latter case there exist sunspot equilibria which are stable under adaptive learning, taking the form of noisy finite state Markov processes at resonant frequencies. For a range of parameter values, a sufficient reduction in government purchases will eliminate these equilibria. 0 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20015 Indeterminacy Learnability Expectational stability Endogenous fluctuations Seignorage (Finance) Mathematical and quantitative methods Microeconomics Macroeconomics and monetary economics Stable Sunspot Equilibira in a CashinAdvance Economy Working Paper

Evans, George W., 1949; McGough, Bruce (University of Oregon, Dept. of Economics, April 17, 2002)[more][less]Evans, George W., 1949 McGough, Bruce 20030815T21:11:27Z 20030815T21:11:27Z 20020417 http://hdl.handle.net/1794/100 We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of SSEs (stationary sunspot equilibria). For a strict subset of the parameter space there exist SSEs that are locally stable under least squares learning provided agents use a common factor representation for their estimated law of motion. These results indicate that for some parameter regions SSEs are more likely to arise under private agent learning than previously recognized. 529408 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200216 Economics Sunspots Stable Sunspot Solutions in Models with Predetermined Variables Working Paper

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
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