Ciência-IUL
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Publication Detailed Description
Ordinary least squares learning and nonlinearities in macroeconomics
Journal Title
Journal of Economic Surveys
Year (definitive publication)
2010
Language
English
Country
United States of America
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Abstract
The paper reviews the literature on adaptive learning in macroeconomic settings where the formation of expectations is particularly relevant. Special attention will be given to simple two-period overlapping generations models with a unique fixed point perfect foresight equilibrium; in this kind of scenario, eventual long-term periodic and a-periodic cycles are exclusively the result of the process of learning. The outcome that high rates of money growth have a potentially destabilizing effect generating periodic fluctuations and chaos is emphasized. The persistence of systematic forecast errors in a scenario where agents are supposed to act rationally is relevant in this context and it will be thoroughly discussed resorting to the notions of self-fulfilling mistakes, consistent expectations equilibria and beliefs equilibria.
Acknowledgements
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Keywords
Adaptive learning; Consistent expectations equilibria; Cycles and chaos; Learning equilibria; OLG models; Self-fulfilling mistakes
Fields of Science and Technology Classification
- Economics and Business - Social Sciences