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Interactive expectations

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Author Info

  • John Foster

    ()
    (The School of Economics, The University of Queensland, Brisbane, Australia)

  • Burkhard Flieth

    ()
    (ITERGO, Thomas-Dehler-Stra, e 2, 81737 M, nchen, Germany)

Abstract

In modeling expectation formation, economic agents are usually viewed as forming expectations adaptively or in accordance with some rationality postulate. We offer an alternative nonlinear model where agents exchange their opinions and information with each other. Such a model yields multiple equilibria, or attracting distributions, that are persistent but subject to sudden large jumps. Using German Federal Statistical Office economic indicators and German IFO Poll expectational data, we show that this kind of model performs well in simulation experiments. Focusing upon producers' expectations in the consumption goods sector, we also discover evidence that structural change in the interactive process occurred over the period of investigation (1970-1998). Specifically, interactions in expectation formation seem to have become less important over time.

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Bibliographic Info

Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 12 (2002)
Issue (Month): 4 ()
Pages: 375-395

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Handle: RePEc:spr:joevec:v:12:y:2002:i:4:p:375-395

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Related research

Keywords: Expectations - Business cycle - Business climate - Interaction - Interdependence - Communication - Opinion polls - Non-linear - Germany;

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Cited by:
  1. Bell, William Paul, 2009. "Network Averaging: a technique for determining a proxy for the dynamics of networks," MPRA Paper 38026, University Library of Munich, Germany.
  2. Sascha O. Becker & Klaus Wohlrabe, 2008. "European Data Watch: Micro Data at the Ifo Institute for Economic Research – The “Ifo Business Survey”, Usage and Access," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 128(2), pages 307-319.
  3. Frank Westerhoff & Martin Hohnisch, 2010. "Consumer sentiment and countercyclical fiscal policies," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(5), pages 609-618.
  4. Bell, William Paul, 2008. "Adaptive Interactive Profit Expectations and Small World Networks," MPRA Paper 37924, University Library of Munich, Germany.
  5. Paul Ormerod & Amy Heineike, 2009. "Global recessions as a cascade phenomenon with interacting agents," Journal of Economic Interaction and Coordination, Springer, vol. 4(1), pages 15-26, June.
  6. Klaus Abberger & Sascha O. Becker & Barbara Hofmann & Klaus Wohlrabe, 2007. "Mikrodaten im ifo Institut für Wirtschaftsforschung: Bestand, Verwendung, Zugang," Ifo Working Paper Series Ifo Working Paper No. 44, Ifo Institute for Economic Research at the University of Munich.
  7. Bell, William Paul, 2009. "Adaptive interactive expectations: dynamically modelling profit expectations," MPRA Paper 38260, University Library of Munich, Germany, revised 09 Feb 2010.
  8. Klaus Abberger & Sascha Becker & Barbara Hofmann & Klaus Wohlrabe, 2007. "Mikrodaten im ifo Institut für Wirtschaftsforschung – Bestand, Verwendung und Zugang," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 1(1), pages 27-42, June.
  9. repec:pra:mprapa:37920 is not listed on IDEAS
  10. Bell, William Paul, 2008. "Adaptive interactive profit expectations using small world networks and runtime weighted model averaging," MPRA Paper 38027, University Library of Munich, Germany.
  11. Richard H. Cohen & Carl Bonham, 2007. "Specifying the Forecast Generating Process for Exchange Rate Survey Forecasts," Working Papers 200718, University of Hawaii at Manoa, Department of Economics.
  12. Mark Bowden & Stuart McDonald, 2008. "The Impact of Interaction and Social Learning on Aggregate Expectations," Computational Economics, Society for Computational Economics, vol. 31(3), pages 289-306, April.
  13. Westerhoff Frank H., 2006. "Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-17, December.
  14. Paul Ormerod, 2008. "Global recessions as a cascade phenomenon with heterogenous, interacting agents," Papers 0807.1639, arXiv.org.

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