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Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts

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  • Westerhoff Frank H.

    () (University of Osnabrueck)

Abstract

We modify Samuelsons multiplier-accelerator model to explore the influence of expectations on fluctuations in economic activity. Within our model, the agents use a nonlinear mix of extrapolative and regressive forecast rules to predict the output. Our model is able to mimic some generic features of business cycles. In particular, consumption is procyclical and fluctuates less than output while investment is procyclical and fluctuates more than output.

Suggested Citation

  • Westerhoff Frank H., 2006. "Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(4), pages 1-17, December.
  • Handle: RePEc:bpj:sndecm:v:10:y:2006:i:4:n:4
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    References listed on IDEAS

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    Cited by:

    1. Sordi, Serena & Vercelli, Alessandro, 2012. "Heterogeneous expectations and strong uncertainty in a Minskyian model of financial fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 544-557.

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