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Intrinsic Heterogeneity in Expectation Formation Author info | Abstract | Publisher info | Download info | Related research | Statistics Bill Branch (College of William and Mary)
George W. Evans () (University of Oregon Economics Department)
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We introduce the concept of a Misspecification Equilibrium to dynamic macroeconomics. Agents choose between a list of misspecified econometric models and base their selection on relative forecast performance. A Misspecification Equilibrium is an equilibrium stochastic process in which agents forecast optimally given their choices, with the forecasting model parameters and predictor proportions endogenously determined. For appropriate conditions on the exogenous driving process and the degree of feedback of expectations, the Misspecification Equilibrium will exhibit Intrinsic Heterogeneity. With Intrinsic Heterogeneity more than one misspecified model receives positive weight in the distribution of predictors across agents, even in the neoclassical limit in which only the most successful predictors are used.
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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number
2003-32.
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Length: 30
Date of creation: 16 May 2003Date of revision:
04 Oct 2004Handle: RePEc:ore:uoecwp:2003-32Contact details of provider: Postal: 1285 University of Oregon, 435 PLC, Eugene, OR 97403-1285 Phone: (541) 346-4661 Fax: (541) 346-1243 Email: Web page: http://economics.uoregon.edu/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Bill Harbaugh).
Keywords: Cobweb model heterogeneous beliefs adaptive learning rational expectations. Other versions of this item:
Find related papers by JEL classification: C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Brock, William A. & Hommes, Cars H., 1998.
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