Adaptive Learning with a Unit Root: An Application to the Current Account

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dc.contributor.author Davies, Ronald B.
dc.contributor.author Shea, Paul, 1977-
dc.date.accessioned 2007-02-21
dc.date.available 2007-02-21
dc.date.issued 2006-07-31
dc.identifier.uri http://hdl.handle.net/1794/3882
dc.description 39 p. en
dc.description.abstract This paper develops a simple two-country, two-good model of international trade and borrowing that suppresses all previous sources of current account dynamics. Under rational expectations, international debt follows a random walk. Under adaptive learning however, international debt behaves like either a stationary or an explosive process. Whether debt converges or diverges depends on the model’s exact specification and the specific learning algorithm that agents employ. When debt diverges, a financial crisis eventually occurs to ensure that the model’s transversality condition holds. Such a financial crisis causes an abrupt decrease in the debtor country’s consumption and utility. en
dc.format.extent 255087 bytes
dc.format.mimetype application/pdf
dc.language.iso en_US en
dc.publisher University of Oregon, Dept of Economics en
dc.relation.ispartofseries University of Oregon Economics Department Working Papers ; 2006-15 en
dc.subject Current account en
dc.subject International debt movements en
dc.subject Expectations en
dc.subject Adaptive learning en
dc.title Adaptive Learning with a Unit Root: An Application to the Current Account en
dc.type Working Paper en


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