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Learning And International Transmission Shocks

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  • Warwick J. McKibbin
  • Kang Yong Tan

Abstract

This paper studies the implications of adaptive learning in the modelling of inter-country linkages in a two-region MSG-Cubed (MSG3) model built on micro-founded behaviors of firms and households. The nature of the transmission process under rational expectations versus the adaptive learning methodology (Evans and Honkapohja, 2001) 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 all cases except for the inflation target shock. Learning could also resolve the quantity anomaly puzzle in the international RBC literature. The findings suggest the choice of expectations formation scheme is crucial in large-scale macroeconomic models.

Suggested Citation

  • Warwick J. McKibbin & Kang Yong Tan, 2007. "Learning And International Transmission Shocks," CAMA Working Papers 2007-01, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2007-01
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-02/1_mckibbin_tan_2007.pdf
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    References listed on IDEAS

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    Cited by:

    1. Yu-chin Chen & Pisut Kulthanavit, 2008. "Monetary Policy Design under Imperfect Knowledge: An Open Economy Analysis," Working Papers UWEC-2008-14, University of Washington, Department of Economics.
    2. Fabienne Féménia & Alexandre Gohin, 2010. "Faut-il une intervention publique pour stabiliser les marchés agricoles ? Revue des questions non résolues," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 91(4), pages 435-456.
    3. McKibbin, Warwick J. & Wilcoxen, Peter J., 2013. "A Global Approach to Energy and the Environment," Handbook of Computable General Equilibrium Modeling, Elsevier.

    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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