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Stationarity of Econometric Learning with Bounded Memory and a Predicted State Variable

Author

Listed:
  • Tatiana Damjanovic

    (University of Exeter)

  • Sarunas Girdenas

    (University of Exeter)

  • Keqing Liu

    (University of Exeter)

Abstract

In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coefficient autoregressive process and we prove that this process is covariance stationary

Suggested Citation

  • Tatiana Damjanovic & Sarunas Girdenas & Keqing Liu, 2015. "Stationarity of Econometric Learning with Bounded Memory and a Predicted State Variable," CDMA Working Paper Series 201501, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmawp:1501
    as

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    File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/2/1501.pdf
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    References listed on IDEAS

    as
    1. Honkapohja, Seppo & Mitra, Kaushik, 2003. "Learning with bounded memory in stochastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 27(8), pages 1437-1457, June.
    2. Conlisk, John, 1974. "Stability in a Random Coefficient Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 529-533, June.
    3. Chevillon, Guillaume & Mavroeidis, Sophocles, 2011. "Learning generates Long Memory," ESSEC Working Papers WP1113, ESSEC Research Center, ESSEC Business School.
    4. Chevillon, Guillaume & Mavroeidis, Sophocles, 2011. "Learning generates Long Memory," ESSEC Working Papers WP1113, ESSEC Research Center, ESSEC Business School.
    5. Berardi, Michele & Galimberti, Jaqueson K., 2014. "A note on the representative adaptive learning algorithm," Economics Letters, Elsevier, vol. 124(1), pages 104-107.
    6. George W. Evans & Seppo Honkapohja, 2000. "Convergence for difference equations with vanishing time-dependence, with applications to adaptive learning," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(3), pages 717-725.
    7. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    econometric learning; bounded memory; random coefficient autoregressive process; stationarity;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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