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Perfect Predictions In Economic Dynamical Systems With Random Perturbations

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  • B hm, Volker
  • Wenzelburger, Jan

Abstract

The paper studies multivariate non linear economic dynamical systems with an expectations feedback subjected to exogenous perturbations. In these systems, agents form expectations on future variables based on subjective transition probabilities given by a Markov kernel. The notion of a perfect Markov kernel that generates rational expectations along all orbits of the system is proposed. Conditions are provided under which perfect Markov kernels exist. Applications are given to models of the Cobweb type, to multivariate affine-linear systems, and to the stochastic OLG model of economic growth. For the latter two models, it is shown when a globally attracting random fixed point with rational expectations exists.

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Bibliographic Info

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

Volume (Year): 6 (2002)
Issue (Month): 05 (November)
Pages: 687-712

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Handle: RePEc:cup:macdyn:v:6:y:2002:i:05:p:687-712_01

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Cited by:
  1. Tomoo Kikuchi, 2006. "Risk, Nonconvergence and Cycles: A Two-Country Model," DEGIT Conference Papers c011_016, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Volker Böhm & Tomoo Kikuchi & George Vachadze, 2008. "Asset Pricing and Productivity Growth: The Role of Consumption Scenarios," Computational Economics, Society for Computational Economics, vol. 32(1), pages 163-181, September.
  3. Kikuchi, Tomoo, 2008. "International asset market, nonconvergence, and endogenous fluctuations," Journal of Economic Theory, Elsevier, vol. 139(1), pages 310-334, March.
  4. Jan Wenzelburger & Volker Boehm, 2004. "On the performance of efficient portfolios," Computing in Economics and Finance 2004 197, Society for Computational Economics.
  5. Wenzelburger, Jan, 2006. "Learning in linear models with expectational leads," Journal of Mathematical Economics, Elsevier, vol. 42(7-8), pages 854-884, November.
  6. Wenzelburger, Jan, 2004. "Learning to predict rationally when beliefs are heterogeneous," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2075-2104, September.

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