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The stability of macroeconomic systems with Bayesian learners

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  • James B. Bullard
  • Jacek Suda

Abstract

We study abstract macroeconomic systems in which expectations play an important role. Consistent with the recent literature on recursive learning and expectations, we replace the agents in the economy with econometricians. Unlike the recursive learning literature, however, the econometricians in the analysis here are Bayesian learners. We are interested in the extent to which expectational stability remains the key concept in the Bayesian environment. We isolate conditions under which versions of expectational stability conditions govern the stability of these systems just as in the standard case of recursive learning. We conclude that the more sophisticated Bayesian learning schemes do not alter the essential expectational stability findings in the literature.

Suggested Citation

  • James B. Bullard & Jacek Suda, 2008. "The stability of macroeconomic systems with Bayesian learners," Working Papers 2008-043, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2008-043
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    References listed on IDEAS

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    Cited by:

    1. Bekiros, Stelios D. & Paccagnini, Alessia, 2015. "Macroprudential Policy And Forecasting Using Hybrid Dsge Models With Financial Frictions And State Space Markov-Switching Tvp-Vars," Macroeconomic Dynamics, Cambridge University Press, vol. 19(07), pages 1565-1592, October.
    2. Elliot Aurissergues, 2017. "Are consistent expectations better than rational expectations ?," Working Papers hal-01558223, HAL.
    3. Gerba, Eddie & ┼╗ochowski, Dawid, 2017. "Knightian uncertainty and credit cycles," Working Paper Series 2068, European Central Bank.
    4. Carravetta, Francesco & Sorge, Marco M., 2013. "Model reference adaptive expectations in Markov-switching economies," Economic Modelling, Elsevier, vol. 32(C), pages 551-559.
    5. Milani, Fabio, 2014. "Learning and time-varying macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 94-114.

    More about this item

    Keywords

    Rational expectations (Economic theory);

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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