Advanced Search
MyIDEAS: Login to save this article or follow this journal

Learning From The Expectations Of Others

Contents:

Author Info

  • GRANATO, JIM
  • GUSE, ERAN A.
  • WONG, M. C. SUNNY

Abstract

The assumption of perfectly rational representative agents is now commonly questioned. This paper explores the equilibrium properties of boundedly rational heterogeneous agents. We combine an adaptive learning process in a modified cobweb model within a Stackleberg framework. We assume that there is an asymmetric information diffusion process from leading to following firms. In contrast to a simple cobweb model which has a unique REE, our model may produce multiple restricted perceptions equilibria (RPE). However, a unique and learnable RPE, under certain conditions, can exist in our model. In addition, the following firms' forecasts can confound the leading firms' forecasts -- when the following firms misinterpret information coming from the leading firms. We refer this situation to the boomerang effect. We also find that the leading firms' mean squared forecast error can be even larger than that of following firms if the proportion of following firms is sufficiently large in the market

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://journals.cambridge.org/abstract_S1365100507070186
File Function: link to article abstract page
Download Restriction: no

Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 12 (2008)
Issue (Month): 03 (June)
Pages: 345-377

as in new window
Handle: RePEc:cup:macdyn:v:12:y:2008:i:03:p:345-377_07

Contact details of provider:
Postal: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Fax: +44 (0)1223 325150
Web page: http://journals.cambridge.org/jid_MDYProvider-Email:journals@cambridge.org

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Eugene Kandel & Ben-Zion Zilberfarb, 1999. "Differential Interpretation Of Information In Inflation Forecasts," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 217-226, May.
  2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  3. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  4. Bennett T. McCallum, . "Role of the minimal state variable criterion in rational expectations models," GSIA Working Papers 1999-13, Carnegie Mellon University, Tepper School of Business.
  5. D. Backus & J. Driffil, 1998. "Inflation and Reputation," Levine's Working Paper Archive 625, David K. Levine.
  6. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  7. Brock, W.A. & Hommes, C.H., 1996. "A Rational Route to Randomness," Working papers 9530r, Wisconsin Madison - Social Systems.
  8. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  9. Klaus Adam, 2003. "Learning to Forecast and Cyclical Behavior of Output and Inflation," Computing in Economics and Finance 2003 297, Society for Computational Economics.
  10. Evans, George W. & Honkapohja, Seppo, 1996. "Least squares learning with heterogeneous expectations," Economics Letters, Elsevier, vol. 53(2), pages 197-201, November.
  11. Adam, Klaus & Evans, George W. & Honkapohja, Seppo, 2006. "Are hyperinflation paths learnable?," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2725-2748, December.
  12. Honkapohja, Seppo & Mitra, Kaushik, 2002. "Learning stability in economics with heterogeneous agents," Working Paper Series 0120, European Central Bank.
  13. Branch, William A. & McGough, Bruce, 2008. "Replicator dynamics in a Cobweb model with rationally heterogeneous expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 65(2), pages 224-244, February.
  14. Bomfim, Antulio N., 2001. "Heterogeneous forecasts and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 145-161, February.
  15. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  16. Guse, E., 2005. "Learning in a Misspecified Multivariate Self-referential Linear Stochastic Model," Cambridge Working Papers in Economics 0548, Faculty of Economics, University of Cambridge.
  17. Evans, George W & Honkapohja, Seppo, 1992. "On the Robustness of Bubbles in Linear RE Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 1-14, February.
  18. Bennett T. McCallum, 2000. "Role of the Minimal State Variable Criterion," NBER Working Papers 7087, National Bureau of Economic Research, Inc.
  19. Arifovic, Jasmina, 1994. "Genetic algorithm learning and the cobweb model," Journal of Economic Dynamics and Control, Elsevier, vol. 18(1), pages 3-28, January.
  20. John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
  21. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
  22. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  23. Ben S. Bernanke & Michael Woodford, 1997. "Inflation Forecasts and Monetary Policy," NBER Working Papers 6157, National Bureau of Economic Research, Inc.
  24. Evans, George W., 1989. "The fragility of sunspots and bubbles," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 297-317, March.
  25. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
  26. Guse, Eran A., 2005. "Stability properties for learning with heterogeneous expectations and multiple equilibria," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1623-1642, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ichiro Muto, 2008. "Monetary Policy and Learning from the Central Bank's Forecast," IMES Discussion Paper Series 08-E-01, Institute for Monetary and Economic Studies, Bank of Japan.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:12:y:2008:i:03:p:345-377_07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.