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Time-Varying Parameters and Endogenous Learning Algorithms

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Abstract

The adaptive learning has primarily focused on decreasing gain learning and constant gain learning. As pointed out theoretically by Marcet and Nicolini (2003) and empirically by Milani (2007) an endogenous learning mechanism may explain key economic behaviors, such as recurrent hyperinflation or time varying volatility. This paper evaluates the mechanism used in those papers in addition to proposing an alternative endogenous learning algorithm. The proposed algorithm outperforms the Marcet and Nicolini's algorithm in simulations and may result in exotic dynamics.

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File URL: http://webpages.ursinus.edu/egaus/Research/EndogenousGains.pdf
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Bibliographic Info

Paper provided by Ursinus College, Department of Economics in its series Working Papers with number 13-02.

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Length: pages
Date of creation: 01 Mar 2013
Date of revision:
Handle: RePEc:urs:urswps:13-02

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Postal: Ursinus College 601 East Main St. Collegeville, PA 19426
Web page: http://webpages.ursinus.edu/ecba/
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Keywords: Learning; Rational Expectations; Endogenous Learning;

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  1. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
  2. Evans, George W. & Ramey, Garey, 2006. "Adaptive expectations, underparameterization and the Lucas critique," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 249-264, March.
  3. John Duffy & Wei Xiao, 2007. "The Value of Interest Rate Stabilization Policies When Agents Are Learning," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2041-2056, December.
  4. Eric Gaus, 2013. "Robust Stability of Monetary Policy Rules under Adaptive Learning," Southern Economic Journal, Southern Economic Association, vol. 80(2), pages 439-453, October.
  5. Fabio Milani, 2007. "Learning and Time-Varying Macroeconomic Volatility," Working Papers 070802, University of California-Irvine, Department of Economics.
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Cited by:
  1. Eric Gaus & Arunima Sinha, 2014. "What does the Yield Curve imply about Investor Expectations?," Working Papers 14-02, Ursinus College, Department of Economics.

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