Reduced Forms of Rational Expectations Models

Author: L. Broze
Publisher: Routledge
ISBN: 1136457739
Format: PDF, ePub, Mobi
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A comprehensive exposition of rational expectations models is provided here, working up from simple univariate models to more sophisticated multivariate and non-linear models.

Learning and Expectations in Macroeconomics

Author: George W. Evans
Publisher: Princeton University Press
ISBN: 1400824265
Format: PDF
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A crucial challenge for economists is figuring out how people interpret the world and form expectations that will likely influence their economic activity. Inflation, asset prices, exchange rates, investment, and consumption are just some of the economic variables that are largely explained by expectations. Here George Evans and Seppo Honkapohja bring new explanatory power to a variety of expectation formation models by focusing on the learning factor. Whereas the rational expectations paradigm offers the prevailing method to determining expectations, it assumes very theoretical knowledge on the part of economic actors. Evans and Honkapohja contribute to a growing body of research positing that households and firms learn by making forecasts using observed data, updating their forecast rules over time in response to errors. This book is the first systematic development of the new statistical learning approach. Depending on the particular economic structure, the economy may converge to a standard rational-expectations or a "rational bubble" solution, or exhibit persistent learning dynamics. The learning approach also provides tools to assess the importance of new models with expectational indeterminacy, in which expectations are an independent cause of macroeconomic fluctuations. Moreover, learning dynamics provide a theory for the evolution of expectations and selection between alternative equilibria, with implications for business cycles, asset price volatility, and policy. This book provides an authoritative treatment of this emerging field, developing the analytical techniques in detail and using them to synthesize and extend existing research.

Price expectations in goods and financial markets

Author: Georges Prat (docteur d'Etat en sciences économiques.)
Publisher: Edward Elgar Pub
ISBN:
Format: PDF, Kindle
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Analysing how price expectations are formed is essential since the dynamics of market prices are mainly driven by the agent's belief concerning the future values of prices and by the uncertainty characterising these values. This is a difficult task as prices are highly volatile in most markets and expectational behaviour is heterogeneous and unstable. This volume discusses the concept of rationality of expectations from both a theoretical and an empirical point of view, and on individual and collective levels. Concerning the first aspect, the book focuses on how agents collect and process information and how market opinion is formed. Concerning the second aspect, the book presents studies based on individual price expectations and on the 'consensus' revealed by survey data. To appreciate the degree of generality of expectational behaviour, the contributors analyse price expectations in a variety of markets, periods and countries. Great attention is paid to financial markets which have represented the main field of analysis of expectations over the last ten years. Four main lessons stem from the works presented in this book. First, if the REH in the muthian sense seems now invalidated, this result does not mean that there is not rationality in price expectations: on the one hand, expectations may be economically rational in the sense of the advantage-cost analysis, and, on the other hand, the exchange of information between agents through the market may involve some mimetic rationalities. Second, it appears important to take into account the individual nature of expectations both at the theoretical and empirical levels: generally, the heterogeneity is not neutral in reaching an economic equilibrium or in estimating expectational processes. Third, expectational behaviour change over time: both the processes and the parameters which intervene in these processes are time-varying, especially according to the volatility of the variables. Fourth, a combination of these three basic processes appears to be successful in explaining the dynamics of expectations, although the expectational process is rather extrapolative (destabilising) when the horizon is short and rather regressive and adaptive (stabilising) when the horizon is long.