Macroeconomic Policy and Learning Dynamics

ESRC grant: RES-000-23-1152

 

 

People:

Chryssi Giannitsarou (Principal Investigator), Seppo Honkapohja, Eran Guse and Aqib Aslam

 

Description of the project:

Expectations of economic agents are a key determinant of macroeconomic outcomes. The aim of this research project is to contribute to the analysis of fiscal and monetary policy (and their interactions), as well as modelling methodologies when expectations formation is treated as econometric forecasting. Our research agenda consists of several different topics and aspects of analysing macroeconomic policy. For example, we will consider heterogeneity in expectations formation, the role of transparency and ways of communication by the Central Bank. Performance of specific procedures will also be analyzed. Another issue to be analysed, is the interaction of fiscal policy with monetary policy under sluggish price adjustment, possibly in conjunction with anticipations of policy changes and learning. Finally, we analyse balanced budget fiscal policy rules, fiscal rules in the presence of public debt and the role of inflation taxes with or withour learning dynamics. From a methodological perspective, the research considers informational heterogeneity between agents, and asymmetric expectational cycles and dynamics due to different, possibly miss-specified forecasting. Research will also focus on theoretical foundations of learning from classical, robustness and Bayesian viewpoints. Finally, we provide a guide for easy computational implementation of adaptive learning algorithms, accompanied by a toolbox for the study of a variety of linear stochastic models.

 

Research output (articles sorted alphabetically by title):

1.     A Model of Near-rational Exuberance, by J. Bullard, G. Evans and S. Honkapohja

2.     Adaptive Learning and Information Diffusion, E. Guse and  M.C. Wong.

3.     Adaptive Learning in Practice, by E. Carceles-Poveda and C. Giannitsarou (this paper is accompanied by a computing toolbox and user manual, which can be found here), Journal of Economic Dynamics and Control, 2007

4.     Anticipated Fiscal Policy and Adaptive Learning, by S. Honkapohja and K. Mitra

5.     Are There Deflation Traps in Open Economies?, G. Evans, E. Guse and S. Honkapohja.

6.     Asset Pricing with Adaptive Learning, by E. Carceles-Poveda and C. Giannitsarou, Review of Economic Dynamics, 2008

7.     Balanced Budget Rules and Aggregate Instability: the Role of Consumption Taxes, by C. Giannitsarou, Economic Journal, 2007

8.     Estimating Recursive Learning in a Macroeconomic Model with Survey Data, E. Guse and D. Pfajfar.

9.     Expectational Business Cycles, by E. Guse

10.  Expectations, Learning and Monetary Policy: An Overview of Recent Research, by G. Evans and S. Honkapohja, in Monetary Policy under Uncertainty and Learning, edited by Klaus Schmidt-Hebbel and Carl Walsh, Santiago, Chile

11.  Generalized Stochastic Gradient Learning, by G. Evans, S. Honkapohja and N. Williams, International Economic Review, forthcoming

12.  Heterogeneous Expectations, Adaptive Learning, and Evolutionary Dynamics, by E. Guse

13.  Increasing Returns, Learning and Beneficial Tax Competition, by Honkapohja, S. and A. Turunen-Red, Journal of Public Economic Theory, 2007

14.  Learning From the Expectations of Others, by J. Granato, E. Guse and S.M.C. Wong, Macroeconomic Dynamics

15.  Learning in a Misspecified Multivariate Self-Referential Linear Stochastic Model, by E. Guse, Journal of Economic Dynamics and Control

16.  Learning in Macroeconomics, by G. Evans and S. Honkapohja, in The New Palgrave Dictionary of Economics, 2nd Edition

17.  Liquidity Traps, Learning and Stagnation, by G. Evans, E. Guse and S. Honkapohja, European Economic Review, forthcoming

18.  Modelling Time and Macroeconomic Dynamics, by A. Anagnostopoulos and C. Giannitsarou

19.  Monetary Policy, Judgment and Near-Rational Exuberance, by J. Bullard, G. Evans and S. Honkapohja, American Economic Review, 2008

20.  Non-linear Estimation of a New Keynesian Model Under Adaptive Learning, by E. Guse

21.  Providing Micro Foundations for VARs, by E. Guse and D. Pfajfar.

22.  Robust Learning Stability with Operational Monetary Policy Rules, by G. Evans and S. Honkapohja, in Monetary Policy under Uncertainty and Learning, edited by Klaus Schmidt-Hebbel and Carl Walsh, Santiago, Chile

23.  Testing Adaptive Learning and Misspecification in a New Keynesian Model, E. Guse and M.C. Wong