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The Stability of Macroeconomic Systems with Bayesian Learners

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  • Bullard, J.B.
  • Suda, J.

Abstract

We study abstract macroeconomic systems in which expectations play an important role. Consistent with the recent literature on recursive learning and expectations, we replace the agents in the economy with econometricians. Unlike the recursive learning literature, however, the econometricians in the analysis here are Bayesian learners. We are interested in the extent to which expectational stability remains the key concept in the Bayesian environment. We isolate conditions under which versions of expectational stability conditions govern the stability of these systems just as in the standard case of recursive learning. We conclude that Bayesian learning schemes, while they are more sophisticated, do not alter the essential expectational stability findings in the literature.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 332.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:bfr:banfra:332

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Web page: http://www.banque-france.fr/
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Keywords: Expectational stability; recursive learning; learnability of rational expectations equilibrium.;

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References

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  1. Andrew Levin & Volker Wieland & John C. Williams, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Finance and Economics Discussion Series 2001-39, Board of Governors of the Federal Reserve System (U.S.).
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  3. Thomas J. Sargent & Noah Williams, 2003. "Impacts of priors on convergence and escapes from Nash inflation," Working Paper 2003-14, Federal Reserve Bank of Atlanta.
  4. 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.
  5. George W. Evans & Seppo Honkapohja & Noah Williams, 2005. "Generalized Stochastic Gradient Learning," University of Oregon Economics Department Working Papers 2005-17, University of Oregon Economics Department, revised 18 May 2008.
  6. Wieland, Volker, 1999. "Monetary policy, parameter uncertainty and optimal learning," ZEI Working Papers B 09-1999, ZEI - Center for European Integration Studies, University of Bonn.
  7. Timothy Cogley & Thomas J. Sargent, 2008. "Anticipated Utility And Rational Expectations As Approximations Of Bayesian Decision Making," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 185-221, 02.
  8. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  9. Massimo Guidolin & Allan Timmerman, 2005. "Properties of equilibrium asset prices under alternative learning schemes," Working Papers 2005-009, Federal Reserve Bank of St. Louis.
  10. Wieland, Volker, 2003. "Monetary Policy and Uncertainty about the Natural Unemployment Rate," CEPR Discussion Papers 3811, C.E.P.R. Discussion Papers.
  11. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-60, September.
  12. Orphanides, Athanasios & Wieland, Volker, 2000. "Efficient Monetary Policy Design near Price Stability," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 327-365, December.
  13. 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.
  14. McGough, Bruce, 2003. "Statistical Learning With Time-Varying Parameters," Macroeconomic Dynamics, Cambridge University Press, vol. 7(01), pages 119-139, February.
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Cited by:
  1. Carravetta, Francesco & Sorge, Marco M., 2013. "Model reference adaptive expectations in Markov-switching economies," Economic Modelling, Elsevier, vol. 32(C), pages 551-559.

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