Adaptive Learning with a Unit Root: An Application to the Current Account
AbstractThis paper develops a simple two-country, two-good model of international trade and borrowing that suppresses all previous sources of current account dynamics. Under rational expectations, international debt follows a random walk. Under adaptive learning however, international debt behaves like either a stationary or an explosive process. Whether debt converges or diverges depends on the specific learning algorithm that agents employ. When debt diverges, a financial crisis eventually occurs to ensure that the modelÂ’s transversality condition holds. Such a financial crisis causes an abrupt decrease in the debtor countryÂ’s consumption and utility.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2006-15.
Date of creation: 10 Apr 2003
Date of revision: 10 Jun 2003
Contact details of provider:
Postal: 1285 University of Oregon, 435 PLC, Eugene, OR 97403-1285
Phone: (541) 346-4661
Fax: (541) 346-1243
Web page: http://economics.uoregon.edu/
More information through EDIRC
current account; international debt movements; expectations; adaptive learning.;
Other versions of this item:
- Davies, Ronald B. & Shea, Paul, 2010. "Adaptive learning with a unit root: An application to the current account," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 179-190, February.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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.:
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
- Barucci, Emilio & Landi, Leonardo, 1997. "Least mean squares learning in self-referential linear stochastic models," Economics Letters, Elsevier, vol. 57(3), pages 313-317, December.
- Stephanie Schmitt-Grohe & Martin Uribe, 2001.
"Closing Small Open Economy Models,"
Departmental Working Papers
200115, Rutgers University, Department of Economics.
- Kenneth Kasa, 2004.
"Learning, Large Deviations, And Recurrent Currency Crises,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 141-173, 02.
- Kenneth Kasa, 2000. "Learning, large deviations, and recurrent currency crises," Working Paper Series 2000-10, Federal Reserve Bank of San Francisco.
- Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 1998. "Lectures on International Trade, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522470, January.
- Bhagwati, Jagdish N, 1969. "Optimal Policies and Immiserizing Growth," American Economic Review, American Economic Association, vol. 59(5), pages 967-70, December.
- Preston, Bruce, 2005.
"Learning about Monetary Policy Rules when Long-Horizon Expectations Matter,"
830, University Library of Munich, Germany.
- Bruce Preston, 2005. "Learning about Monetary Policy Rules when Long-Horizon Expectations Matter," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September.
- Bruce Preston, 2003. "Learning about monetary policy rules when long-horizon expectations matter," Working Paper 2003-18, Federal Reserve Bank of Atlanta.
- Cho, In-Koo & Kasa, Kenneth, 2008.
"Learning Dynamics And Endogenous Currency Crises,"
Cambridge University Press, vol. 12(02), pages 257-285, April.
- Marc-Andre Letendre, 2000. "Linear Approximation Methods and International Real Business Cycles with Incomplete Asset Markets," Econometric Society World Congress 2000 Contributed Papers 1539, Econometric Society.
- Evans, George W. & Honkapohja, S., 1998.
"Stochastic gradient learning in the cobweb model,"
Elsevier, vol. 61(3), pages 333-337, December.
- Harold L. Cole & Maurice Obstfeld, 1991.
"Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter?,"
NBER Working Papers
3027, National Bureau of Economic Research, Inc.
- Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
- Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bill Harbaugh).
If references are entirely missing, you can add them using this form.