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Forecasting the Forecasts of Others in the Frequency Domain

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  • Kenneth Kasa

    (Federal Reserve Bank of San Francisco)

Abstract

This paper studies a class of models developed by Townsend (1983) and Sargent (1991). These models feature dynamic signal extraction problems and an infinite regress in expectations. This paper uses frequency domain methods to compute an analytical solution to the fixed point problem posed by the infinite regress in expectations. The advantage of a frequency domain approach vis-a-vis a time domain approach derives for the fact that these models produce equilibrium with non-fundamental moving average representations, in which market observations do not reveal the underlying shocks to agents' information sets. As a result, decision rules contain moving average components that are more easily handled in the frequency domain than in the time domain. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1999.0085
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 3 (2000)
Issue (Month): 4 (October)
Pages: 726-756

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Handle: RePEc:red:issued:v:3:y:2000:i:4:p:726-756

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Related research

Keywords: signal extraction; infinite regress; frequency domain;

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References

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  1. Lars Hansen & Thomas Sargent & Thomas Tallarini, . "Robust Permanent Income and Pricing," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 1997-51, Carnegie Mellon University, Tepper School of Business.
  2. Binder,M. & Pesaran,M.H., 1995. "Decision-Making in the Presence of Heterogeneous Information and Social Interactions," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9537, Faculty of Economics, University of Cambridge.
  3. Townsend, Robert M, 1983. "Forecasting the Forecasts of Others," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 546-88, August.
  4. Townsend, Robert M, 1978. "Market Anticipations, Rational Expectations, and Bayesian Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(2), pages 481-94, June.
  5. Evans, George, 1985. "Expectational Stability and the Multiple Equilibria Problem in Linear Rational Expectations Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1217-33, November.
  6. Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers, Federal Reserve Bank of Minneapolis 127, Federal Reserve Bank of Minneapolis.
  7. Futia, Carl A, 1981. "Rational Expectations in Stationary Linear Models," Econometrica, Econometric Society, Econometric Society, vol. 49(1), pages 171-92, January.
  8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  9. Cogley, Timothy & Nason, James M, 1995. "Output Dynamics in Real-Business-Cycle Models," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 492-511, June.
  10. Lucas, Robert E, Jr, 1975. "An Equilibrium Model of the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1113-44, December.
  11. Robert J Aumann, 1999. "Agreeing to Disagree," Levine's Working Paper Archive 512, David K. Levine.
  12. Taub, Bart, 1989. "Aggregate fluctuations as an information transmission mechanism," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 13(1), pages 113-150, January.
  13. S. Grossman & L. Weiss, . "Heterogeneous Information and the Theory of the Business Cycle," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 16-80, Wharton School Rodney L. White Center for Financial Research.
  14. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 283-322, March.
  15. Sargent, Thomas J., 1991. "Equilibrium with signal extraction from endogenous variables," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(2), pages 245-273, April.
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