IDEAS home Printed from https://ideas.repec.org/p/bir/birmec/15-06.html
   My bibliography  Save this paper

Learning Dynamics with Data (Quasi-) Differencing

Author

Listed:
  • Pei Kuang

Abstract

The paper studies learning with data (quasi-)differencing where agents need to (quasi-)difference data and then use an otherwise standard least squares learning procedure. It (1) establishes that the E-stability Principle is still valid for analyzing the convergence of the learning with (quasi-) differencing data process to the Rational Expectations Equilibrium (REE), (2) provides new perspectives on the stability of the Rational Expectations bubble solutions, and equilbrium selection under adaptive learning, (3) demonstrates the importance of consideringagents' uncertainty and learning about the long-run growth of endogenous variables in dynamic macroeconomic models, (4) provides recommendations and a caveat on addressing model misspecifications in econometric practice, and (5) showslearning with (quasi-) differencing data helps understand some salient features of fluctuations in asset prices, inflation and aggregate economic activities.

Suggested Citation

  • Pei Kuang, 2014. "Learning Dynamics with Data (Quasi-) Differencing," Discussion Papers 15-06, Department of Economics, University of Birmingham.
    • Handle: RePEc:bir:birmec:15-06
    as

    Download full text from publisher

    File URL: https://repec.cal.bham.ac.uk/pdf/15-06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
    2. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
    3. William Branch & George W. Evans, 2007. "Model Uncertainty and Endogenous Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 207-237, April.
    4. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
    5. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-247, July-Sept.
    6. Klaus Adam, 2007. "Experimental Evidence on the Persistence of Output and Inflation," Economic Journal, Royal Economic Society, vol. 117(520), pages 603-636, April.
    7. Evans, George W., 1989. "The fragility of sunspots and bubbles," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 297-317, March.
    8. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
    9. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    10. Klaus Adam, 2003. "Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(4), pages 887-907.
    11. McCallum, Bennett T., 2009. "Inflation determination with Taylor rules: Is new-Keynesian analysis critically flawed?," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1101-1108, November.
    12. Cochrane, John H., 2009. "Can learnability save new-Keynesian models?," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1109-1113, November.
    13. Taylor, John B, 1977. "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," Econometrica, Econometric Society, vol. 45(6), pages 1377-1385, September.
    14. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
    15. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-254, April.
    16. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
    17. 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.
    18. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hommes, Cars, 2018. "Behavioral & experimental macroeconomics and policy analysis: a complex systems approach," Working Paper Series 2201, European Central Bank.
    2. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    3. Norbert Christopeit & Michael Massmann, 2013. "Estimating Structural Parameters in Regression Models with Adaptive Learning," Tinbergen Institute Discussion Papers 13-111/III, Tinbergen Institute.
    4. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
    5. William Branch & George W. Evans, 2007. "Model Uncertainty and Endogenous Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(2), pages 207-237, April.
    6. Evans, David & Evans, George W. & McGough, Bruce, 2022. "The RPEs of RBCs and other DSGEs," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    7. Athanasios Orphanides & John Williams, 2004. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Chapters, in: The Inflation-Targeting Debate, National Bureau of Economic Research, Inc.
    8. Airaudo, Marco, 2013. "Monetary policy and stock price dynamics with limited asset market participation," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 1-22.
    9. Guse, Eran A., 2010. "Heterogeneous expectations, adaptive learning, and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 42-57, May.
    10. Norman, Thomas W.L., 2015. "Learning, hypothesis testing, and rational-expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 90(C), pages 93-105.
    11. Berardi, Michele & Galimberti, Jaqueson K., 2013. "A note on exact correspondences between adaptive learning algorithms and the Kalman filter," Economics Letters, Elsevier, vol. 118(1), pages 139-142.
    12. Evans, George W & McGough, Bruce, 2018. "Equilibrium selection, observability and backward-stable solutions," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 1-10.
    13. Petia Ivanova, 2007. "The Fiscal Theory for the Cost Level and Monetarism," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 60-79.
    14. Evans, George W. & McGough, Bruce, 2020. "Stable near-rational sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 186(C).
    15. repec:zbw:bofrdp:2007_032 is not listed on IDEAS
    16. Dmitri Kolyuzhnov & Anna Bogomolova, 2004. "Escape Dynamics: A Continuous Time Approximation," Econometric Society 2004 Latin American Meetings 27, Econometric Society.
    17. Patrick Minford & Naveen Srinivasan, 2015. "Can the Learnability Criterion Ensure Determinacy in New Keynesian Models?," South Asian Journal of Macroeconomics and Public Finance, , vol. 4(1), pages 43-61, June.
    18. Hommes, Cars & Zhu, Mei, 2014. "Behavioral learning equilibria," Journal of Economic Theory, Elsevier, vol. 150(C), pages 778-814.
    19. In-Koo Cho & Kenneth Kasa, 2015. "Learning and Model Validation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 45-82.
    20. Gerunov, Anton, 2014. "Критичен Преглед На Основните Подходи За Моделиране На Икономическите Очаквания [A Critical Review of Major Approaches for Modeling Economic Expectations]," MPRA Paper 68797, University Library of Munich, Germany.
    21. Ellison, Martin & Pearlman, Joseph, 2011. "Saddlepath learning," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1500-1519, July.

    More about this item

    Keywords

    Expectations; Convergence; Long-Run Growth; Serial Correlation; Bubbles; Underparameterization;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bir:birmec:15-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oleksandr Talavera (email available below). General contact details of provider: https://edirc.repec.org/data/debhauk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.