Abstract

http://ssrn.com/abstract=1920055
 
 

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Learning and Macroeconomics


George W. Evans


University of Oregon - Department of Economics; University of Saint Andrews - School of Economics and Finance

Seppo Honkapohja


Bank of Finland; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

January 2009

Annual Review of Economics, Vol. 1, pp. 421-451, 2009

Abstract:     
Expectations play a central role in modern macroeconomic theories. The econometric learning approach models economic agents as forming expectations by estimating and updating forecasting models in real time. The learning approach provides a stability test for rational expectations and a selection criterion in models with multiple equilibria. In addition, learning provides new dynamics if older data are discounted, if models are misspecified, or if agents choose between competing models. This paper describes the expectational stability (E-stability) principle and the stochastic approximation tools used to assess equilibria under learning. Applications of learning to a number of areas are reviewed, including the design of monetary and fiscal policy, business cycles, self-fulfilling prophecies, hyperinflation, liquidity traps, and asset prices.

Accepted Paper Series





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Date posted: August 31, 2011  

Suggested Citation

Evans, George W. and Honkapohja, Seppo, Learning and Macroeconomics (January 2009). Annual Review of Economics, Vol. 1, pp. 421-451, 2009. Available at SSRN: http://ssrn.com/abstract=1920055 or http://dx.doi.org/10.1146/annurev.economics.050708.142927

Contact Information

George W. Evans (Contact Author)
University of Oregon - Department of Economics ( email )
1285 University of Oregon
Eugene, OR 97403
United States
541-346-4662 (Phone)
541-346-1243 (Fax)
University of Saint Andrews - School of Economics and Finance ( email )
The Scores, Castlecliff
St. Andrews, Fife KY16 8RD
United Kingdom
44-1334-462435 (Phone)
HOME PAGE: http://www.st-andrews.ac.uk/economics/staff/pages.g.evans.shtml
Seppo Honkapohja
Bank of Finland ( email )
P.O. Box 160
FIN-00101 Helsinki
Finland
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
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