Adaptive Expectations with Bias Correction
Posted: 2 Jan 2015
Date Written: 2014
Abstract
There are situations in which the old-fashioned adaptive expectation process seems to provide a good description of agents’ behavior. Unfortunately, this expectation scheme may not satisfy the necessary rationality condition (unconditional mean-zero error). This paper shows how to fix the problem introducing an bias correction term and analyzes its effect on the dynamics of economic variables.
JEL Classification: D84
Suggested Citation: Suggested Citation
Gallegati, Marco and Palestrini, Antonio, Adaptive Expectations with Bias Correction (2014). Available at SSRN: https://ssrn.com/abstract=2544275 or http://dx.doi.org/10.2139/ssrn.2544275
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