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Ordinary Least Squares Learning And Nonlinearities In Macroeconomics

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  • Orlando Gomes

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. Copyright � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economic Surveys.

Volume (Year): 24 (2010)
Issue (Month): 1 (02)
Pages: 52-84

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Handle: RePEc:bla:jecsur:v:24:y:2010:i:1:p:52-84

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References

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Citations

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Cited by:
  1. Gomes, Orlando, 2012. "Rational thinking under costly information—Macroeconomic implications," Economics Letters, Elsevier, vol. 115(3), pages 427-430.
  2. Ahmad Naimzada & Fabio Tramontana, 2010. "A Dynamic Model of a Boundedly Rational Consumer with a Simple Least Squared Learning Mechanism," Computational Economics, Society for Computational Economics, vol. 36(1), pages 47-56, June.

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