Adaptive forecasts, hysteresis, and endogenous fluctuations

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Adaptive forecasts, hysteresis, and endogenous fluctuations

Author Info

George W. Evans
Seppo Honkapohja

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Abstract

This paper considers fluctuations and policy in an economic model with multiple steady states due to a production externality. In the absence of policy changes, the driving forces generating fluctuations are exogenous random productivity shocks. However, because there are multiple steady states, large productivity shocks can shift the economy between high-and low- level equilibria, providing an additional endogenous source of fluctuations. The scope for macroeconomic policy is large since changes in policy can also shift the economy between equilibria. In this setting macroeconomic policy exhibits hysteresis (irreversibilities) and threshold effects and can be used to eliminate endogenous fluctuations.

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Publisher Info
Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1993)
Issue (Month): ()
Pages: 3-13
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Handle: RePEc:fip:fedfer:y:1993:p:3-13:n:1

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Cited by:
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Albert Marcet & Juan Pablo Nicolini, 2005. "Money and Prices in Models of Bounded Rationality in High Inflation Economies," Economics Working Papers 875, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
Other versions:
- Albert Marcet & Juan Pablo Nicolini, 2005. "Money and prices in models of bounded rationality in high inflation economies," Working Paper Series 469, European Central Bank. [Downloadable!]
- Albert Marcet & Juan Pablo Nicolini, 2005. "Money and Prices in Models of Bounded Rationality in High Inflation Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 452-479, April. [Downloadable!] (restricted)
Evans, George W & Honkapohja, Seppo, 2008. "Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch," CEPR Discussion Papers 6640, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- George Evans & Seppo Honkapohja, 2008. " Expectations, Learning and Monetary Policy: An Overview of Recent Research," CDMA Working Paper Series 0802, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
- George W. Evans & Seppo Honkapohja, 2008. "Expectations, Learning, And Monetary Policy: An Overview Of Recent Research," Working Papers Central Bank of Chile 501, Central Bank of Chile. [Downloadable!]
- Evans , George W & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy: an overview of recent research," Research Discussion Papers 32/2007, Bank of Finland. [Downloadable!]
Wiliam Branch & George W. Evans, 2005. "Model Uncertainty and Endogenous Volatility," University of Oregon Economics Department Working Papers 2005-21, University of Oregon Economics Department, revised 26 Oct 2006. [Downloadable!]
Other versions:
- George W. Evans & William A. Branch, 2005. "Model Uncertainty and Endogenous Volatility," Computing in Economics and Finance 2005 33, Society for Computational Economics.
- William Branch & George W. Evans, 2007. "Model Uncertainty and Endogenous Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 207-237, April. [Downloadable!] (restricted)
Adam, Klaus, 2005. "Experimental Evidence on the Persistence of Output and Inflation," CEPR Discussion Papers 4885, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Klaus Adam, 2005. "Experimental evidence on the persistence of output and inflation," Working Paper Series 492, European Central Bank. [Downloadable!]
- Klaus Adam, 2007. "Experimental Evidence on the Persistence of Output and Inflation," Economic Journal, Royal Economic Society, vol. 117(520), pages 603-636, 04. [Downloadable!] (restricted)
George W. Evans & Avik Chakraborty, 2006. "Can Perpetual Learning Explain the Forward Premium Puzzle?," University of Oregon Economics Department Working Papers 2006-8, University of Oregon Economics Department, revised 20 Aug 2006. [Downloadable!]
Other versions:
- Chakraborty, Avik & Evans, George W., 2008. "Can perpetual learning explain the forward-premium puzzle?," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 477-490, April. [Downloadable!] (restricted)
Albert Marcet & Juan P. Nicolini, 2003. "Recurrent Hyperinflations and Learning," American Economic Review, American Economic Association, vol. 93(5), pages 1476-1498, December. [Downloadable!]
Other versions:
- Albert Marcet & Juan P. Nicolini, 1995. "Recurrent Hyperinflations and Learning," Economics Working Papers 244, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2001. [Downloadable!]
- Marcet, A. & Nicolini, J.P., 1997. "Recurrent Hyperinflations and Learning," Papers 9721, Centro de Estudios Monetarios Y Financieros-.
- Marcet, Albert & Nicolini, Juan Pablo, 1998. "Recurrent Hyperinflations and Learning," CEPR Discussion Papers 1875, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Jang-Ting Guo & Kevin Lansing, 1999. "Fiscal policy, increasing returns, and endogenous fluctuations," Working Papers in Applied Economic Theory 99-08, Federal Reserve Bank of San Francisco. [Downloadable!]
Other versions:
- Guo, Jang-Ting & Lansing, Kevin J., 2002. "Fiscal Policy, Increasing Returns, And Endogenous Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 6(05), pages 633-664, November. [Downloadable!]
Kaushik Mitra & Seppo Honkapohja, 1999. "Learning with Bounded Memory in Stochastic Models," Computing in Economics and Finance 1999 221, Society for Computational Economics. [Downloadable!]
Other versions:
- Seppo Honkapohja & Kaushik Mitra, . "Learning with Bounded Memory in Stochastic Models," Discussion Papers 00/42, Department of Economics, University of York. [Downloadable!]
- Honkapohja, S. & Mitra, K., 1999. "Learning with Bounded Memory in Stochastic Models," University of Helsinki, Department of Economics 456, Department of Economics.
- Honkapohja, Seppo & Mitra, Kaushik, 2003. "Learning with bounded memory in stochastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1437-1457, June. [Downloadable!] (restricted)

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