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Evans, George W., 1949; Guesnerie, R. (University of Oregon, Dept. of Economics, May 15, 2001)[more][less]Evans, George W., 1949 Guesnerie, R. 20030812T23:31:03Z 20030812T23:31:03Z 20010515 http://hdl.handle.net/1794/74 We investigate local strong rationality (LSR) in a one step forward looking univariate model with memory one. Eductive arguments are used to determine when common knowledge (CK) that the solution is near some perfect foresight path is sufficient to trigger complete coordination on that path (I.e. the path is LSR). Coordination of expectations is shown to depend on three factors: the nature of the CK initial beliefs, the degree of structural heterogeneity and the information structure. Our sufficient conditions for LSR precisely reflect these features and provide basic consistent justifications for the choice of the saddle path solution. 0 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20017 Economics Rationality Coordination on saddle path solutions: the eductive viewpoint Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, August 3, 2001)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030812T23:26:42Z 20030812T23:26:42Z 20010803 http://hdl.handle.net/1794/73 A fundamentals based monetary policy rule, which would be the optimal monetary policy without commitment when private agents have perfectly rational expectations, is unstable if in fact these agents follow standard adaptive learning rules. This problem can be overcome if private expectations are observed and suitable incorporated into the policy maker's optimal rule. These strong results extend to the case in which there is simultaneous learning by the policy maker and the private agents. Our findings show the importance of conditioning policy appropriately, not just on fundamentals, but also directly on observed household and firm expectations. 0 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20016 Macroeconomics Monetary policy (Targets, instruments, and effects) Mathematical and quantitative methods Information and uncertainty Expectations and the Stability Problem for Optimal Monetary Policies Working Paper

Evans, George W., 1949; Ramey, Garey (University of Oregon, Dept. of Economics, November 29, 2001)[more][less]Evans, George W., 1949 Ramey, Garey 20030812T23:37:28Z 20030812T23:37:28Z 20011129 http://hdl.handle.net/1794/75 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 consider this issue from the vantage point of a bounded rationality, where for transparency we model bounded rationality by means of simple adaptive expectations.We show that for a range of processes, monetary policy remains subject to the Lucas critique. However, there are also regimes in which the expectation parameter is locally invariant and the Lucas critique does not apply. 0 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20018 Macroeconomics Monetary policy (Targets, instruments, and effects) Prices, business fluctuations, and cycles Price level Information and uncertainty Microeconomics Inflation (Finance) Deflation (Finance) Adaptive Expectations, Underparameterization and the Lucas Critique Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, January 14, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030812T23:48:28Z 20030812T23:48:28Z 20020114 http://hdl.handle.net/1794/76 We consider the stability under adaptive learning of the complete set of solutions to the model x_i=beta(Ei*)(x_i+1) when beat >1. In addition to the fundamentals solution, the literature describes both finitestate Markov sunspot solutions and autoregressive solutions depending on an arbitrary martingale difference sequence. We clarify the relationships between these solutions and show that the stability properties of equilibria may depend crucially on the representations used by agents in the learning process. Autoregressive forms of solutions are not learnable, but finitestate Markov sunspot solutions are stable under learning if beta < 1. 0 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20019 Indeterminacy Representations of solutions Learnability Expectational stability Endogenous fluctuations Microeconomics Expectational Stability of Stationary Sunspot Equilibria in a Forwardlooking Linear Model Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, April 6, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030814T21:59:52Z 20030814T21:59:52Z 20020406 http://hdl.handle.net/1794/93 We examine the nonlinear model x_t = E_t F(x_(t+1)). Markov SSEs exist near an indeterminate steady state, hat(x)=F(hat(x)), provided F'(hat(x) > 1. Despite the importance of indeterminancy in macroeconomics, earlier results have not provided conditions for the existance of adaptively stable SSEs near an indeterminate steady state. We show that there exists Markov SSEs near hat(x) that are Estable, and therefore locally stable under adaptive learning, if F'(hat(x)) < 1. 237568 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;20029 Endogenous fluctuations Expectational stability Learnability Indeterminacy Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State 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; 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, 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; McGough, Bruce (University of Oregon, Dept. of Economics, July 25, 2002)[more][less]Evans, George W., 1949 McGough, Bruce 20030815T20:59:39Z 20030815T20:59:39Z 20020725 http://hdl.handle.net/1794/98 We extend common factor analysis to a multidimensional setting by considering a bivariate reduced form consistent with many Real Business Cycle type models. We show how to obtain new representations of sunspots and find that there are parameter regions in which these sunspots are stable under learning. However, once the parameters are restricted to coincide with those generated by certain standard models of indeterminacy, we find, under one information assumption, that no stable sunspots exist, and under another information assumption, that they exist only for a very small part of the indeterminacy region. This leads to the following puzzle: why does indeterminacy almost always imply instability in RBCtype models? 670720 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200214 Stability Earning Expectations Sunspots Business cycles Macroeconomics Microeconomics Economic stabilization Indeterminacy and the Stability Puzzle in NonConvex Economies 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; 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; Honkapohja, Seppo, 1951 (University of Oregon, Dept. of Economics, November 8, 2002)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20030815T21:20:11Z 20030815T21:20:11Z 20021108 http://hdl.handle.net/1794/102 We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under private agent learning. Appropriately designed expectations based rules can yield optimal rational expectations equilibria that are both determinate and stable under learning. Some simple instrument rules and approximate targeting rules also have these desirable properties. We take up various complications in implementing optimal policy, including the observability of key variables and the required knowledge of structural parameters. An additional issue that we take up concerns the implications of expectation shocks not arising from transitional learning effects. 450560 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200218 Expectation shocks Stability Adaptive learning Interest rate setting Commitment Microeconomics Macroeconomics Adaptive Learning and Monetary Policy Design Working Paper

Adam, Klaus; Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, March 17, 2003)[more][less]Adam, Klaus Evans, George W., 1949 Honkapohja, Seppo, 1951 20031215T18:52:18Z 20031215T18:52:18Z 20030317 http://hdl.handle.net/1794/127 Earlier studies of the seigniorage inflation model have found that the highinflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the highinflation steady state. The hyperinflationary paths are stable under learning if agents can utilize contemporaneous data. However, in an economy populated by a mixture of agents, some of whom only have access to lagged data, stable inflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high. 258,760 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;200331 Mathematical and quantitative methods Mathematical methods and programming Existence and stability conditions of equilibrium Microeconomics Expectations Macroeconomics and monetary economics Information and uncertainty Speculations Search, learning, and information Prices, business fluctuations, and cycles Price level Inflation (Finance) Deflation (Finance) Are Stationary Hyperinflation Paths Learnable? Working Paper

Evans, George W., 1949 (University of Oregon, Dept. of Economics, March 31, 2003)[more][less]Evans, George W., 1949 20041019T16:33:38Z 20041019T16:33:38Z 20030331 http://hdl.handle.net/1794/233 14 p. Summarizes the OrphanidesWilliams argument, locates the paper within the rapidly growing literature on learning and monetary policy, and offers specific comments on natural extensions or alternative approaches. 162349 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200329 Monetary policy Adaptive learning Comment on "Imperfect Knowledge, Inflation Expectations and Monetary Policy" by Athanasios Orphanides and John C. Williams 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

Branch, William A.; Evans, George W., 1949 (University of Oregon, Dept. of Economics, May 16, 2003)[more][less]Branch, William A. Evans, George W., 1949 20031211T19:46:23Z 20031211T19:46:23Z 20030516 http://hdl.handle.net/1794/126 We introduce the concept of a Misspecification Equilibrium to dynamic macroeconomics. Agents choose between a list of misspecified econometric models and base their selection on relative forecast performance. A Misspecification Equilibrium is an equilibrium stochastic process in which agents forecast optimally given their choices, with the forecasting model parameters and predictor proportions endogenously determined. For appropriate conditions on the exogenous driving process and the degree of feedback of expectations, the Misspecification Equilibrium will exhibit Intrinsic Heterogeneity. With Intrinsic Heterogeneity more than one misspecified model receives positive weight in the distribution of predictors across agents, even in the neoclassical limit in which only the most successful predictors are used. 502,648 bytes application/pdf en_US University of Oregon, Dept. of Economics University of Oregon Economics Department Working Papers;200332 Mathematical and quantitative methods Macroeconomics and monetary economics Expectations Prices, business fluctuations, and cycles Speculations Mathematical methods and programming Existence and stability conditions of equilibrium Intrinsic Heterogeneity in Expectation Formation Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, June 23, 2003)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20031215T19:39:41Z 20031215T19:39:41Z 20030623 http://hdl.handle.net/1794/132 We introduce the Ecorrespondence principle for stochastic dynamic expectations models as a tool for comparative dynamics analysis. The principle is applicable to equilibria that are stable under least squares and closely related learning rules. With this technique it is possible to study, without explicit solving for the equilibrium, how properties of the equilibrium are affected by changes in the structural parameters of the model. Even if qualitative comparative dynamics results are not obtainable, a quantitative version of the principle can be applied. 244242 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;200327 The ECorrespondence Principle Working Paper

Evans, George W., 1949; Honkapohja, Seppo, 1951 (University of Oregon, Dept of Economics, July 12, 2003)[more][less]Evans, George W., 1949 Honkapohja, Seppo, 1951 20031215T19:08:19Z 20031215T19:08:19Z 20030712 http://hdl.handle.net/1794/128 Using New Keynesian models, we compare Friedman's kpercent money supply rule to optimal interest rate setting, with respect to determinacy, stability under learning and optimality. First we review the recent literature: openloop interest rate rules are subject to indeterminacy and instability problems, but a properly chosen expectationsbased rule yields determinacy and stability under learning, and implements optimal policy. We show that Friedman's rule also can generate equilibria that are determinate and stable under learning. However, computing the mean quadratic welfare loss, we find for calibrated models that Friedman's rule performs poorly when compared to the optimal interest rate rule. 320,062 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;200330 Macroeconomics and monetary economics Prices, business fluctuations, and cycles Monetary policy Central banking, and the supply of money and credit Monetary policy (Targets, instruments, and effects) Price level Inflation (Finance) Deflation (Finance) Friedman's Money Supply Rule versus Optimal Interest Rate Policy Working Paper

Evans, George W., 1949; Guesnerie, R. (University of Oregon, Dept of Economics, October 10, 2003)[more][less]Evans, George W., 1949 Guesnerie, R. 20031215T19:29:59Z 20031215T19:29:59Z 20031010 http://hdl.handle.net/1794/131 We examine local strong rationality (LSR) in multivariate models with both forwardlooking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive stability conditions for the solution to be LSR. In the saddlepoint stable case the saddlepath solution is LSR provided the model is structurally homogeneous across agents. However, the eductive stability conditions are strictly more demanding when heterogeneity is present, as can be expected in multisectoral models. Heterogeneity is thus a potentially important source of instability even in the saddlepoint stable case. 0 bytes application/pdf en_US University of Oregon, Dept of Economics University of Oregon Economics Department Working Papers;200328 Mathematical and quantitative methods Mathematical methods and programming Game theory and bargaining theory Noncooperative games Existence and stability conditions of equilibrium Coordination on SaddlePath Solutions: The Eductive Viewpoint  Linear Multivariate Models 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
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