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Learning and international transmission of shocks

  • McKibbin, Warwick J.
  • Tan, Kang Yong

This paper studies the implications of adaptive learning in the modelling of inter-country linkages in a two-region MSG G-cubed model built on micro-founded behaviors of firms and households. The nature of the transmission process under rational expectations versus adaptive learning is explored. We investigate the propagation mechanism within and across borders for various shocks and policy changes within the United States: change in inflation target, fiscal policy, productivity shock, and rise in equity risk. Adaptive learning is found to change the short run sign of transmission in most cases but this also depends on the fraction of forward-looking agents in the economy.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 5 (September)
Pages: 1033-1052

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Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:1033-1052
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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