Advanced Search
MyIDEAS: Login

An Econometric Analysis of Polish Inflation Dynamics with Learning about Rational Expectations

Contents:

Author Info

  • Peter Zadrozny
Registered author(s):

    Abstract

    Rational expectations modelling has been criticized for assuming that economic agents can learn quickly about and compute rational price expectations. In response, various authors have studied theoretical models in which economic agents use adaptive statistical rules to develop price expectations. A goal of this literature has been to compare resulting learning equilibria with rational expectations equilibria. The lack of empirical analysis in this literature suggests that adaptive learning makes otherwise linear dynamic models nonlinearly intractable for current econometric technology. In response to the lack of empirical work in this literature, this paper applies to post-1989 monthly data for Poland a new method for modelling learning about price expectations. The key idea of the method is to modify Cagan’s backward-looking adaptive-expectations hypothesis about the way expectations are actually updated to a forward-looking characterization which instead specifies the result of learning. It says that, whatever the details of how learning actually takes places, price expectations are expected to converge geometrically to rationality. The method is tractable because it involves linear dynamics. The paper contributes substantively by analyzing the recent Polish inflation, theoretically by characterizing learning, and econometrically by using learning as a restriction for identifying (i.e., estimating wth finite variance) unobserved price expectations with the Kalman filter. Copyright Kluwer Academic Publishers 1997

    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://hdl.handle.net/10.1023/A:1003067911708
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Springer in its journal Economics of Planning.

    Volume (Year): 30 (1997)
    Issue (Month): 2 (May)
    Pages: 221-238

    as in new window
    Handle: RePEc:kap:ecopln:v:30:y:1997:i:2:p:221-238

    Contact details of provider:
    Web page: http://www.springerlink.com/link.asp?id=113294

    Related research

    Keywords: backward-looking adaptive expectations hypothesis; forward-looking characterization; price expectations; rational expectations modelling;

    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. Salemi, Michael K & Sargent, Thomas J, 1979. "The Demand for Money during Hyperinflation under Rational Expectations: II," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 741-58, October.
    2. Burmeister, Edwin & Wall, Kent D., 1982. "Kalman filtering estimation of unobserved rational expectations with an application to the German hyperinflation," Journal of Econometrics, Elsevier, vol. 20(2), pages 255-284, November.
    3. James Bullard, 1991. "Learning equilibria," Working Papers 1991-004, Federal Reserve Bank of St. Louis.
    4. Zadrozny, Peter A., 1998. "An eigenvalue method of undetermined coefficients for solving linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1353-1373, August.
    5. Zadrozny, Peter, 1988. "Gaussian Likelihood of Continuous-Time ARMAX Models When Data Are Stocks and Flows at Different Frequencies," Econometric Theory, Cambridge University Press, vol. 4(01), pages 108-124, April.
    6. Peter A. Zadrozny, 1990. "Forecasting U.S. GNP at monthly intervals with an estimated bivariate time series model," Economic Review, Federal Reserve Bank of Atlanta, issue Nov, pages 2-15.
    7. Marcet, Albert & Sargent, Thomas J, 1989. "Convergence of Least-Squares Learning in Environments with Hidden State Variables and Private Information," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1306-22, December.
    8. Bullard, James, 1992. "Time-varying parameters and nonconvergence to rational expectations under least squares learning," Economics Letters, Elsevier, vol. 40(2), pages 159-166, 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. Tihomir Enev & Kenneth Koford, 2000. "The Effect of Incomes Policies on Inflation in Bulgaria and Poland," Economic Change and Restructuring, Springer, vol. 33(3), pages 141-169, October.

    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:kap:ecopln:v:30:y:1997:i:2:p:221-238. 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: (Guenther Eichhorn) or (Christopher F. Baum).

    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.