Bayesian Model Averaging, Learning and Model Selection
Agents have two forecasting models, one consistent with the unique rational expectations equilibrium, another that assumes a time-varying parameter structure. When agents use Bayesian updating to choose between models in a self-referential system, we find that learning dynamics lead to selection of one of the two models. However, there are parameter regions for which the non-rational forecasting model is selected in the long-run. A key structural parameter governing outcomes measures the degree of expectations feedback in Muth's model of price determination.
|Date of creation:||Mar 2012|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bullard, James, 1992. "Time-varying parameters and nonconvergence to rational expectations under least squares learning," Economics Letters, Elsevier, vol. 40(2), pages 159-166, October.
- Cho, In-Koo & Sargent, Thomas J., 2000.
"Escaping Nash inflation,"
Working Paper Series
0023, European Central Bank.
- Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
- Timothy Cogley & Thomas J. Sargent, 2005.
"The conquest of US inflation: Learning and robustness to model uncertainty,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
- Cogley, Timothy & Sargent, Thomas J., 2005. "The conquest of U.S. inflation: learning and robustness to model uncertainty," Working Paper Series 0478, European Central Bank.
- Young, H. Peyton, 2004. "Strategic Learning and its Limits," OUP Catalogue, Oxford University Press, number 9780199269181, December.
- Thomas J. Sargent & Noah Williams, 2005.
"Impacts of Priors on Convergence and Escapes from Nash Inflation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 360-391, April.
- Thomas J. Sargent & Noah Williams, 2003. "Impacts of priors on convergence and escapes from Nash inflation," FRB Atlanta Working Paper 2003-14, Federal Reserve Bank of Atlanta.
- McGough, Bruce, 2003. "Statistical Learning With Time-Varying Parameters," Macroeconomic Dynamics, Cambridge University Press, vol. 7(01), pages 119-139, February.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8917. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.