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Author: Stephen J. Cole Publisher: ISBN: Category : Languages : en Pages :
Book Description
The adaptive learning approach has been fruitfully employed to model the formation of aggregate expectations at the macroeconomic level, as an alternative to rational expectations. This paper uses adaptive learning to understand, instead, the formation of expectations at the micro-level, by focusing on individual expectations and, in particular, trying to account for their heterogeneity. We exploit survey data on output and inflation expectations by individual professional forecasters. We link micro and macro by endowing forecasters with the same information set that they would have as economic agents in a benchmark New Keynesian model. Forecasters are, however, allowed to differ in the constant gain values that they use to update their beliefs. We estimate the best-fitting constant gain for each forecaster. We also extract individual measures of sentiment, defined as the degrees of excess optimism and pessimism that cannot be justified by the near-rational learning model, given the state of the economy and the updated beliefs. Our results highlight the heterogeneity in the gain coefficients adopted by forecasters, which is particularly pronounced at the beginning of the sample. The median values are consistent with those typically estimated using aggregate data, and display some moderate time variation: they occasionally jump to higher values in the 1970-80s, and stabilize in the 1990s and 2000s. Individual sentiment is persistent and heterogeneous. Differences in sentiment, however, don't simply cancel out in the aggregate: the majority of forecasters exhibit excess optimism, or excess pessimism, at the same time.
Author: Stephen J. Cole Publisher: ISBN: Category : Languages : en Pages :
Book Description
The adaptive learning approach has been fruitfully employed to model the formation of aggregate expectations at the macroeconomic level, as an alternative to rational expectations. This paper uses adaptive learning to understand, instead, the formation of expectations at the micro-level, by focusing on individual expectations and, in particular, trying to account for their heterogeneity. We exploit survey data on output and inflation expectations by individual professional forecasters. We link micro and macro by endowing forecasters with the same information set that they would have as economic agents in a benchmark New Keynesian model. Forecasters are, however, allowed to differ in the constant gain values that they use to update their beliefs. We estimate the best-fitting constant gain for each forecaster. We also extract individual measures of sentiment, defined as the degrees of excess optimism and pessimism that cannot be justified by the near-rational learning model, given the state of the economy and the updated beliefs. Our results highlight the heterogeneity in the gain coefficients adopted by forecasters, which is particularly pronounced at the beginning of the sample. The median values are consistent with those typically estimated using aggregate data, and display some moderate time variation: they occasionally jump to higher values in the 1970-80s, and stabilize in the 1990s and 2000s. Individual sentiment is persistent and heterogeneous. Differences in sentiment, however, don't simply cancel out in the aggregate: the majority of forecasters exhibit excess optimism, or excess pessimism, at the same time.
Author: Ruediger Bachmann Publisher: Elsevier ISBN: 0128234768 Category : Business & Economics Languages : en Pages : 876
Book Description
Handbook of Economic Expectations discusses the state-of-the-art in the collection, study and use of expectations data in economics, including the modelling of expectations formation and updating, as well as open questions and directions for future research. The book spans a broad range of fields, approaches and applications using data on subjective expectations that allows us to make progress on fundamental questions around the formation and updating of expectations by economic agents and their information sets. The information included will help us study heterogeneity and potential biases in expectations and analyze impacts on behavior and decision-making under uncertainty. - Combines information about the creation of economic expectations and their theories, applications and likely futures - Provides a comprehensive summary of economics expectations literature - Explores empirical and theoretical dimensions of expectations and their relevance to a wide array of subfields in economics
Author: Peter J. N. Sinclair Publisher: Routledge ISBN: 1135179778 Category : Business & Economics Languages : en Pages : 402
Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Philippe Aghion Publisher: Princeton University Press ISBN: 9780691094854 Category : Biography & Autobiography Languages : en Pages : 596
Book Description
Assembling some of the leading figures in the field of macroeconomics, this text highlights the continuing influence of the ideas of Edmund Phelps since the early 1960s. The contributions address many of the most important current areas of macroeconomic research in 2003.
Author: Publisher: ISBN: 9789036103190 Category : Languages : en Pages : 167
Book Description
"Expectation formation plays a central role in dynamic models in modern macroeconomics and finance. This thesis studies expectation formation in dynamic market experiments. One feature that differentiates this thesis from the current mainstream literature is that we apply the heterogeneous expectations framework instead of the traditional representative agent framework assuming rational expectations. We study interaction of individual forecasting behavior in different types of expectations feedback systems, compare the situation where expectations are directly translated into computed optimal economic decisions with the situation where agents solve the optimization problem themselves and finally, we study switching behavior and apply the switching model to mutual fund choice, where people make dynamic choices between different mutual funds."--Samenvatting auteur.
Author: Paul De Grauwe Publisher: ISBN: 019883232X Category : Macroeconomics Languages : en Pages : 273
Book Description
Modern macroeconomics has been based on the paradigm of the rational individual capable of understanding the complexity of the world. This has created a very shallow theory of the business cycle in which nothing happens in the macroeconomy unless shocks occur from outside. Behavioural Macroeconomics: Theory and Policy uses a different paradigm. It assumes that individual agents experience cognitive limitations preventing them from having rational expectations. Instead these individuals use simple rules of behaviour. Behavioural Macroeconomics introduces rationality by allowing individuals to learn from their mistakes and to switch to the rules that perform better. It introduces the idea of endogenously generated "animals spirits" that drive the business cycle and are in turn influenced by it, and applies this model to shed new light on a number of important issues. It analyses the role of fiscal policy in stabilizing the economy while maintaining debt sustainability; expands the model to include a banking sector and show how banks amplify the booms and busts; and explains how animal spirits help to synchronize the business cycles across countries. The model set out in Behavioural Macroeconomics leads to very different policy implications from the mainstream macroeconomic model. It shows how policymakers have a responsibility to stabilize an otherwise unstable system.
Author: Cars Hommes Publisher: Cambridge University Press ISBN: 110701929X Category : Business & Economics Languages : en Pages : 273
Book Description
Recognising that the economy is a complex system with boundedly rational interacting agents, applies complexity modelling to economics and finance.
Author: Stephen J. Cole
Author: Stephen J. Cole
Author: Ruediger Bachmann
Author: Eran Alan Guse
Author: Peter J. N. Sinclair
Author: Philippe Aghion
Author: 
Author: 
Author: Richard Thomas Curtin
Author: Paul De Grauwe
Author: Cars Hommes