Heuristic Expectation Formation And Business Cycles: A Simple Linear Model
We develop a Keynesian business cycle model to study how extrapolative and regressive expectation formation rules may affect fluctuations in economic activity. We find that simple expectation formation rules may have an impact on the level and the stability of the equilibrium income, the size of the multiplier and the resulting adjustment process after an exogenous shocks. Our model also reveals that national income may be influenced by how agents perceive their long-run average income. Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd.
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Volume (Year): 59 (2008)
Issue (Month): 1 (02)
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- Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994.
"Does Consumer Sentiment Forecast Household Spending? If So, Why?,"
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- Franke, Reiner & Lux, Thomas, 1993. " Adaptive Expectations and Perfect Foresight in a Nonlinear Metzlerian Model of the Inventory Cycle," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 355-63.
- Day, Richard H. & Shafer, Wayne, 1985. "Keynesian chaos," Journal of Macroeconomics, Elsevier, vol. 7(2), pages 277-295.
- Hommes, Cars H., 1995. "A reconsideration of Hicks' non-linear trade cycle model," Structural Change and Economic Dynamics, Elsevier, vol. 6(4), pages 435-459, December.
- Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
- Day, Richard H. & Shafer, Wayne, 1985. "Keynesian Chaos," Journal of Macroeconomics, Elsevier, vol. 7(3), pages 277-295.
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