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Macro Dynamics in a Model with Uncertainty

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Author Info
Piero Ferri ()
Anna Maria Variato ()
Abstract

Limits on information have deep economic impact and affect the conduct of economic policy. In the present paper we explore the effect of substantive uncertainty. A macro model is then derived in order to make this condition work at micro economic level too: the investment function implies an interaction between real and financial aspects; the labor market is ruled by imperfect competition; agents are boundedly rational and make their forecasts according to a Markov regime switching rule; and finally monetary authorities learns about the NAIRU. As a result we obtain a model which is mostly keynesian in nature, whose implications can nevertheless be compared with the new neoclassical synthesis models. Simulations are carried out and show the possible appearence of endogenous fluctuations, persistence of oscillations, and the emergence of a trade-off between the control of inflation and the cyclicality of the economy.

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Publisher Info
Paper provided by University of Bergamo, Department of Economics in its series Working Papers with number 0704.

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Length: 32 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:brg:wpaper:0704

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Related research
Keywords: endogenous cycles; monetary policy; uncertainty; bounded rationality; learning;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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