This file is part of IDEAS , which uses RePEc data
[ Papers |
Articles |
Software |
Books |
Chapters |
Authors |
Institutions |
JEL Classification |
NEP reports |
Search |
New papers by email |
Author registration |
Rankings |
Volunteers |
FAQ |
Blog |
Help! ]
Model Uncertainty and Endogenous Volatility Author info | Abstract | Publisher info | Download info | Related research | Statistics William Branch (University of California, Irvine)
George W. Evans (University of Oregon)
Additional information is available for the following
registered author(s):
This paper identifies two channels through which the economy can generate endogenous inflation and output volatility, an empirical regularity, by introducing model uncertainty into a Lucas-type monetary model. The equilibrium path of inflation depends on agents' expectations and a vector of exogenous random variables. Following Branch and Evans (2006) agents are assumed to underparameterize their forecasting models. A Misspecification Equilibrium arises when beliefs are optimal, given the misspecification, and predictor proportions are based on relative forecast performance. We show that there may exist multiple Misspecification Equilibria, a subset of which are stable under least squares learning and dynamic predictor selection. The dual channels of least squares parameter updating and dynamic predictor selection combine to generate regime switching and endogenous volatility. (Copyright: Elsevier)
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
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.
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics .
Volume (Year): 10 (2007)
Issue (Month): 2 (April)
Pages: 207-237
Download reference. The following formats are available: HTML
(with abstract ),
plain text
(with abstract ),
BibTeX ,
RIS (EndNote, RefMan, ProCite),
ReDIF
Handle: RePEc:red:issued:06-95Contact details of provider: Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/review.htm More information through EDIRC
Order Information: Email: Web: http://www.EconomicDynamics.org/RED17.htm
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).
Keywords: Lucas model ; Model uncertainty ; Adaptive learning ; Rational expectations ; Volatility ; Other versions of this item:
Find related papers by JEL classification: C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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.:
Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
[Downloadable!] (restricted)
William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness ,"
Econometrica ,
Econometric Society, vol. 65(5), pages 1059-1096, September.
Cars Hommes & Gerhard Sorger, 1997.
"Consistent Expectations Equilibria ,"
Tinbergen Institute Discussion Papers
97-051/1, Tinbergen Institute.
Other versions: George W. Evans & Seppo Honkapohja, 1993.
"Adaptive forecasts, hysteresis, and endogenous fluctuations ,"
Economic Review ,
Federal Reserve Bank of San Francisco, pages 3-13.
[Downloadable!]
Thomas Sargent & Noah Williams & Tao Zha, 2006.
"The Conquest of South American Inflation ,"
NBER Working Papers
12606, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Athanasios Orphanides & John C. Williams, 2003.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
NBER Working Papers
9884, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Athanasios Orphanides & John C. Williams, 2002.
"Imperfect knowledge, inflation expectations, and monetary policy ,"
Working Papers in Applied Economic Theory
2002-04, Federal Reserve Bank of San Francisco.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2003.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
CFS Working Paper Series
2003/40, Center for Financial Studies.
[Downloadable!] Athanasios Orphanides & John C. Williams, 2002.
"Imperfect knowledge, inflation expectations, and monetary policy ,"
Finance and Economics Discussion Series
2002-27, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Athanasios Orphanides & John Williams, 2004.
"Imperfect Knowledge, Inflation Expectations, and Monetary Policy ,"
NBER Chapters ,
in: The Inflation-Targeting Debate, pages 201-246
National Bureau of Economic Research, Inc.
[Downloadable!] Chang-Jin Kim & Charles R. Nelson, 1999.
"Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle ,"
The Review of Economics and Statistics ,
MIT Press, vol. 81(4), pages 608-616, November.
[Downloadable!] (restricted)
Michael T. Owyang, 2001.
"Persistence, excess volatility, and volatility clusters in inflation ,"
Review ,
Federal Reserve Bank of St. Louis, issue Nov., pages 41-52.
[Downloadable!]
William A. Branch & John Carlson & George W. Evans & Bruce McGough, 2004.
"Monetary policy, endogenous inattention, and the volatility trade-off ,"
Working Paper
0411, Federal Reserve Bank of Cleveland.
[Downloadable!]
Other versions:
Wiliam Branch & John Carlson & George W. Evans & Bruce McGough, 2004.
"Monetary Policy, Endogenous Inattention, and the Volatility Trade-off ,"
University of Oregon Economics Department Working Papers
2004-19, University of Oregon Economics Department, revised 15 May 2007.
[Downloadable!] William Branch & John Carlson & George W. Evans & Bruce McGough, 2006.
"Monetary Policy, Endogenous Inattention, and the Volatility Trade-off ,"
2006 Meeting Papers
106, Society for Economic Dynamics.
[Downloadable!] WilliamA. Branch & John Carlson & GeorgeW. Evans & Bruce McGough, 2009.
"Monetary Policy, Endogenous Inattention and the Volatility Trade-off ,"
Economic Journal ,
Royal Economic Society, vol. 119(534), pages 123-157, 01.
[Downloadable!] (restricted) Timothy Cogley & Thomas J. Sargent, 2003.
"Drifts and volatilities: monetary policies and outcomes in the post WWII U.S ,"
Working Paper
2003-25, Federal Reserve Bank of Atlanta.
[Downloadable!]
Other versions:
Timothy Cogley & Thomas Sargent, .
"Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US ,"
Working Papers
2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
[Downloadable!] Timothy Cogley & Thomas J. Sargent, 2005.
"Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S ,"
Review of Economic Dynamics ,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
[Downloadable!] (restricted) Marcet, Albert & Sargent, Thomas J., 1989.
"Convergence of least squares learning mechanisms in self-referential linear stochastic models ,"
Journal of Economic Theory ,
Elsevier, vol. 48(2), pages 337-368, August.
[Downloadable!] (restricted)
Bullard, James & Cho, In-Koo, 2005.
"Escapist policy rules ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 29(11), pages 1841-1865, November.
[Downloadable!] (restricted)
Other versions: Bruce McGough, 2003.
"Shocking Escapes ,"
Computing in Economics and Finance 2003
294, Society for Computational Economics.
[Downloadable!]
Other versions: repec:cup:macdyn:v:9:y:2005:i:1:p:1-27 is not listed on IDEAS
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.
[Downloadable!] (restricted)
Fabio Milani, 2005.
"Expectations, Learning and Macroeconomic Persistence ,"
Macroeconomics
0510022, EconWPA.
[Downloadable!]
Other versions:
Fabio Milani, 2005.
"Expectations, Learning and Macroeconomic Persistence ,"
Working Papers
050608, University of California-Irvine, Department of Economics.
[Downloadable!] Milani, Fabio, 2007.
"Expectations, learning and macroeconomic persistence ,"
Journal of Monetary Economics ,
Elsevier, vol. 54(7), pages 2065-2082, October.
[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: Ben S. Bernanke & Ilian Mihov, 1998.
"Measuring Monetary Policy ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 113(3), pages 869-902, August.
[Downloadable!] (restricted)
Other versions:
Bernanke, Ben S. & Mihov, Ilian, 1995.
"Measuring Monetary Policy ,"
Economics Series
10, Institute for Advanced Studies.
[Downloadable!] Ben S. Bernanke & Ilian Mihov, 1995.
"Measuring Monetary Policy ,"
NBER Working Papers
5145, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Ben S. Bernanke & Ilian Mihov, 1995.
"Measuring monetary policy ,"
Working Papers in Applied Economic Theory
95-09, Federal Reserve Bank of San Francisco.
Kim, Chang-Jin & Nelson, Charles R & Piger, Jeremy, 2004.
"The Less-Volatile U.S. Economy: A Bayesian Investigation of Timing, Breadth, and Potential Explanations ,"
Journal of Business & Economic Statistics ,
American Statistical Association, vol. 22(1), pages 80-93, January.
Other versions:
Chang-Jin Kim & Charles Nelson & Jeremy Piger, 2001.
"The less volatile U.S. economy: a Bayesian investigation of timing, breadth, and potential explanations ,"
International Finance Discussion Papers
707, Board of Governors of the Federal Reserve System (U.S.).
[Downloadable!] Chang-Jin Kim & Charles Nelson & Jeremy M. Piger, 2003.
"The less volatile U.S. economy: a Bayesian investigation of timing, breadth, and potential explanations ,"
Working Papers
2001-016, Federal Reserve Bank of St. Louis.
[Downloadable!] V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2005.
"A critique of structural VARs using real business cycle theory ,"
Working Papers
631, Federal Reserve Bank of Minneapolis.
[Downloadable!]
Other versions: repec:cup:macdyn:v:2:y:1998:i:3:p:287-321 is not listed on IDEAS
Adam, Klaus, 2005.
"Learning To Forecast And Cyclical Behavior Of Output And Inflation ,"
Macroeconomic Dynamics ,
Cambridge University Press, vol. 9(01), pages 1-27, February.
[Downloadable!]
Other versions: Christopher A. Sims & Tao Zha, 2006.
"Were There Regime Switches in U.S. Monetary Policy? ,"
American Economic Review ,
American Economic Association, vol. 96(1), pages 54-81, March.
[Downloadable!]
Other versions: James H. Stock & Mark W. Watson, 2003.
"Has the business cycle changed? ,"
Proceedings ,
Federal Reserve Bank of Kansas City, pages 9-56.
[Downloadable!]
Bill Branch & George W. Evans, 2003.
"Intrinsic Heterogeneity in Expectation Formation ,"
University of Oregon Economics Department Working Papers
2003-32, University of Oregon Economics Department, revised 04 Oct 2004.
[Downloadable!]
Other versions:
George Evans & William Branch, 2003.
"Intrinsic Heterogeneity in Expectation Formation ,"
Computing in Economics and Finance 2003
312, Society for Computational Economics.
Branch, William A. & Evans, George W., 2006.
"Intrinsic heterogeneity in expectation formation ,"
Journal of Economic Theory ,
Elsevier, vol. 127(1), pages 264-295, March.
[Downloadable!] (restricted) N. Williams, 2002.
"Stability and Long Run Equilibrium in Stochastic Fictitious Play ,"
Princeton Economic Theory Working Papers
cbeeeb49cc8afc83f125df5a8, David K. Levine.
[Downloadable!]
Wiliam Branch & George W. Evans, 2005.
"A Simple Recursive Forecasting Model ,"
University of Oregon Economics Department Working Papers
2005-3, University of Oregon Economics Department, revised 01 Feb 2005.
[Downloadable!]
Other versions: Evans, George W & Ramey, Garey, 1992.
"Expectation Calculation and Macroeconomic Dynamics ,"
American Economic Review ,
American Economic Association, vol. 82(1), pages 207-24, March.
[Downloadable!] (restricted)
Evans, George W. & Honkapohja, Seppo & Sargent, Thomas J., 1993.
"On the preservation of deterministic cycles when some agents perceive them to be random fluctuations ,"
Journal of Economic Dynamics and Control ,
Elsevier, vol. 17(5-6), pages 705-721.
[Downloadable!] (restricted)
Albert Marcet & Thomas J. Sargent, 1992.
"Speed of Convergence of Recursive Least Squares Learning with ARMA Perceptions ,"
Economics Working Papers
15, Department of Economics and Business, Universitat Pompeu Fabra.
[Downloadable!]
Kenneth Kasa, 2004.
"Learning, Large Deviations, And Recurrent Currency Crises ,"
International Economic Review ,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 141-173, 02.
[Downloadable!] (restricted)
Other versions: 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) George W. Evans & Garey Ramey, 2001.
""Adaptive Expectations, Underparameterization and the Lucas Critique ,"
University of Oregon Economics Department Working Papers
2001-8, University of Oregon Economics Department, revised 01 Dec 2004.
[Downloadable!]
Other versions:
George Evans & Garey Ramey, 2001.
"Adaptive Expectations, Underparameterization and the Lucas Critique ,"
University of California at San Diego, Economics Working Paper Series
2001-11, Department of Economics, UC San Diego.
[Downloadable!] Evans, George W. & Ramey, Garey, 2006.
"Adaptive expectations, underparameterization and the Lucas critique ,"
Journal of Monetary Economics ,
Elsevier, vol. 53(2), pages 249-264, March.
[Downloadable!] (restricted)
Full
references Cited by : (explanations , 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.)
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!]
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, 2008.
"Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch ,"
CEPR Discussion Papers
6640, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Wiliam Branch & George W. Evans, 2005.
"A Simple Recursive Forecasting Model ,"
University of Oregon Economics Department Working Papers
2005-3, University of Oregon Economics Department, revised 01 Feb 2005.
[Downloadable!]
Other versions: Wiliam Branch & George W. Evans, 2006.
"Asset Return Dynamics and Learning ,"
University of Oregon Economics Department Working Papers
2006-14, University of Oregon Economics Department.
[Downloadable!]
Alex Brazier & Richard Harrison & Mervyn King & Tony Yates, .
"The danger of inflating expectations of macroeconomic stability: heuristic switching in an overlapping generations monetary model ,"
Bank of England working papers
303, Bank of England.
[Downloadable!]
Other versions:
Access and
download statistics Did you know? RePEc stands for Research Papers in Economics.
This page was last updated on 2009-10-28.
This information is provided to you by IDEAS at the Department of Economics , College of Liberal Arts and Sciences , University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics .