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Expectational Business Cycles

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  • Eran Guse

    (University of Cambridge)

Abstract

I introduce Expectational Business Cycles where aggregate activity fluctuates due to learning, heterogeneous updating rules and random changes in the social norm predictor. Agents use one of two updating rules to learn the equilibrium values while heterogeneity is dictated via an evolutionary process. Uncertainty of a new equilibrium, due to a shock to the structure of the economy, results in a sudden decrease in output. As agents learn the equilibrium, output slowly increases to its equilibrium value. These business cycles arrive faster, are longer and more severe as agents possess less rationality.

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Bibliographic Info

Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2004 with number 97.

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Date of creation: 17 Sep 2004
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Handle: RePEc:mmf:mmfc04:97

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Web page: http://www.essex.ac.uk/afm/mmf/index.html

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  1. In-Koo Cho & Noah Williams & Thomas J. Sargent, 2002. "Escaping Nash Inflation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 1-40.
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  8. Kenneth Kasa, 2000. "Forecasting the Forecasts of Others in the Frequency Domain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 726-756, October.
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  18. Timothy Cogley, . "How Fast Can the New Economy Grow? A Bayesian Analysis of the Evolution of Trend Growth," Working Papers 2133301, Department of Economics, W. P. Carey School of Business, Arizona State University.
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Cited by:
  1. Leitemo, Kai & Söderström , Ulf, 2004. "Robust monetary policy in the New-Keynesian framework," Research Discussion Papers 31/2004, Bank of Finland.
  2. Antti Suvanto & Juhana Hukkinen, 2005. "Stable price level and changing prices," Macroeconomics 0508034, EconWPA.
  3. Mikko Puhakka, 2005. "Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments," Macroeconomics 0508033, EconWPA.

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