882 resultados para Noisy rational expectations
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This paper builds a simple, empirically-verifiable rational expectations model for term structure of nominal interest rates analysis. It solves an stochastic growth model with investment costs and sticky inflation, susceptible to the intervention of the monetary authority following a policy rule. The model predicts several patterns of the term structure which are in accordance to observed empirical facts: (i) pro-cyclical pattern of the level of nominal interest rates; (ii) countercyclical pattern of the term spread; (iii) pro-cyclical pattern of the curvature of the yield curve; (iv) lower predictability of the slope of the middle of the term structure; and (v) negative correlation of changes in real rates and expected inflation at short horizons.
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In this paper we prove convergence to chaotic sunspot equilibrium through two learning rules used in the bounded rationality literature. The rst one shows the convergence of the actual dynamics generated by simple adaptive learning rules to a probability distribution that is close to the stationary measure of the sunspot equilibrium; since this stationary measure is absolutely continuous it results in a robust convergence to the stochastic equilibrium. The second one is based on the E-stability criterion for testing stability of rational expectations equilibrium, we show that the conditional probability distribution de ned by the sunspot equilibrium is expectational stable under a reasonable updating rule of this parameter. We also report some numerical simulations of the processes proposed.
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It is well known that cointegration between the level of two variables (labeled Yt and yt in this paper) is a necessary condition to assess the empirical validity of a present-value model (PV and PVM, respectively, hereafter) linking them. The work on cointegration has been so prevalent that it is often overlooked that another necessary condition for the PVM to hold is that the forecast error entailed by the model is orthogonal to the past. The basis of this result is the use of rational expectations in forecasting future values of variables in the PVM. If this condition fails, the present-value equation will not be valid, since it will contain an additional term capturing the (non-zero) conditional expected value of future error terms. Our article has a few novel contributions, but two stand out. First, in testing for PVMs, we advise to split the restrictions implied by PV relationships into orthogonality conditions (or reduced rank restrictions) before additional tests on the value of parameters. We show that PV relationships entail a weak-form common feature relationship as in Hecq, Palm, and Urbain (2006) and in Athanasopoulos, Guillén, Issler and Vahid (2011) and also a polynomial serial-correlation common feature relationship as in Cubadda and Hecq (2001), which represent restrictions on dynamic models which allow several tests for the existence of PV relationships to be used. Because these relationships occur mostly with nancial data, we propose tests based on generalized method of moment (GMM) estimates, where it is straightforward to propose robust tests in the presence of heteroskedasticity. We also propose a robust Wald test developed to investigate the presence of reduced rank models. Their performance is evaluated in a Monte-Carlo exercise. Second, in the context of asset pricing, we propose applying a permanent-transitory (PT) decomposition based on Beveridge and Nelson (1981), which focus on extracting the long-run component of asset prices, a key concept in modern nancial theory as discussed in Alvarez and Jermann (2005), Hansen and Scheinkman (2009), and Nieuwerburgh, Lustig, Verdelhan (2010). Here again we can exploit the results developed in the common cycle literature to easily extract permament and transitory components under both long and also short-run restrictions. The techniques discussed herein are applied to long span annual data on long- and short-term interest rates and on price and dividend for the U.S. economy. In both applications we do not reject the existence of a common cyclical feature vector linking these two series. Extracting the long-run component shows the usefulness of our approach and highlights the presence of asset-pricing bubbles.
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We compare competitive equilibrium outcomes with and without trading by a privately infonned "monopolistic" insider, in a model with real investment portfolio choices ex ante, and noise trading generated by aggregate uncertainty regarding other agents' intertemporal consumption preferences. The welfare implications of insider trading for the ex ante expected utilities of outsiders are analyzed. The role of interim infonnation revelation due to insider trading, in improving the risk-sharing among outsiders with stochastic liquidity needs, is examined in detaiL
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The paper analyzes a two period general equilibrium model with individual risk and moral hazard. Each household faces two individual states of nature in the second period. These states solely differ in the household's vector of initial endowments, which is strictly larger in the first state (good state) than in the second state (bad state). In the first period households choose a non-observable action. Higher leveis of action give higher probability of the good state of nature to occur, but lower leveIs of utility. Households have access to an insurance market that allows transfer of income across states of oature. I consider two models of financiaI markets, the price-taking behavior model and the nonlínear pricing modelo In the price-taking behavior model suppliers of insurance have a belief about each household's actíon and take asset prices as given. A variation of standard arguments shows the existence of a rational expectations equilibrium. For a generic set of economies every equilibrium is constraíned sub-optímal: there are commodity prices and a reallocation of financiaI assets satisfying the first period budget constraint such that, at each household's optimal choice given those prices and asset reallocation, markets clear and every household's welfare improves. In the nonlinear pricing model suppliers of insurance behave strategically offering nonlinear pricing contracts to the households. I provide sufficient conditions for the existence of equilibrium and investigate the optimality properties of the modeI. If there is a single commodity then every equilibrium is constrained optimaI. Ir there is more than one commodity, then for a generic set of economies every equilibrium is constrained sub-optimaI.
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This paper analyzes the determinants of expectational coordination on the perfect foresight equilibrium of an open economy in the class of one-dimensional models where the price is determined by price expectations. In this class of models, we relate autarky expectational stability conditions to regional integration ones, providing an intuitive open economy interpretation ofthe elasticities condition obtained by Guesnerie [11]. There, we show that the degree of structural heterogeneity trades-off the existence of standard efficiency gains -due to the increase in competition (spatial price stabilization)- and coordination upon the welfare enhancing free-trade equilibrium (stabilizing price expectations). This trade-off provides a new rationale for an exogenous price intervention at the international levei. Through the coordinational concern of the authority, trading countries are ab]e to fully reap the bene:fits from trade. We illustrate this point showing that classical measures evaluating ex-ante the desirability of economic integration (net welfare gains) do not always advise integration between two expectationally stable economies.
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The microfoundations of economic models are a hotly debated topic in the literature. The debate is important because microfoundations —the ways in which agents decide and behave— have implications that go beyond a specific firm, market or activity; they strongly condition macroeconomic outcomes. This document addresses the classical problems of rationality, uncertainty and institutions: when there is Keynes-Knight uncertainty and rationality is bounded, decision making adopts the form of conventional rules or heuristics. The hyper-rational representative agent of the rational expectations world could generate highly misleading outcomes in macro models. Section 2 applies this discussion to the study of technical change and to innovation and diffusion of technology in the international system, which transform the patterns of specialization. Section 3 discusses the forces that may trap a country in a low-growth trap and the crucial role of institutions in escaping from this trap.
Macroeconomic Rationality and Lucas' Misperceptions Model: Further Evidence from Forty-One Countries
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Several researchers have examined Lucas's misperceptions model as well as various propositions derived from it within a cross-section empirical framework. The cross-section approach imposes a single monetary policy regime for the entire period. Our paper innovates on existing tests of those rational expectations propositions by allowing the simultaneous effect of monetary and short run aggregate supply (oil price) shocks on output behavior and the employment of advanced panel econometric techniques. Our empirical findings, for a sample of 41 countries over 1949 to 1999, provide evidence in favor of the majority of rational expectations propositions.
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This paper examines assumptions about future prices used in real estate applications of DCF models. We confirm both the widespread reliance on an ad hoc rule of increasing period-zero capitalization rates by 50 to 100 basis points to obtain terminal capitalization rates and the inability of the rule to project future real estate pricing. To understand how investors form expectations about future prices, we model the spread between the contemporaneously period-zero going-in and terminal capitalization rates and the spread between terminal rates assigned in period zero and going-in rates assigned in period N. Our regression results confirm statistical relationships between the terminal and next holding period going-in capitalization rate spread and the period-zero discount rate, although other economically significant variables are statistically insignificant. Linking terminal capitalization rates by assumption to going-in capitalization rates implies investors view future real estate pricing with myopic expectations. We discuss alternative specifications devoid of such linkage that align more with a rational expectations view of future real estate pricing.
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This thesis studies the field of asset price bubbles. It is comprised of three independent chapters. Each of these chapters either directly or indirectly analyse the existence or implications of asset price bubbles. The type of bubbles assumed in each of these chapters is consistent with rational expectations. Thus, the kind of price bubbles investigated here are known as rational bubbles in the literature. The following describes the three chapters. Chapter 1: This chapter attempts to explain the recent US housing price bubble by developing a heterogeneous agent endowment economy asset pricing model with risky housing, endogenous collateral and defaults. Investment in housing is subject to an idiosyncratic risk and some mortgages are defaulted in equilibrium. We analytically derive the leverage or the endogenous loan to value ratio. This variable comes from a limited participation constraint in a one period mortgage contract with monitoring costs. Our results show that low values of housing investment risk produces a credit easing effect encouraging excess leverage and generates credit driven rational price bubbles in the housing good. Conversely, high values of housing investment risk produces a credit crunch characterized by tight borrowing constraints, low leverage and low house prices. Furthermore, the leverage ratio was found to be procyclical and the rate of defaults countercyclical consistent with empirical evidence. Chapter 2: It is widely believed that financial assets have considerable persistence and are susceptible to bubbles. However, identification of this persistence and potential bubbles is not straightforward. This chapter tests for price bubbles in the United States housing market accounting for long memory and structural breaks. The intuition is that the presence of long memory negates price bubbles while the presence of breaks could artificially induce bubble behaviour. Hence, we use procedures namely semi-parametric Whittle and parametric ARFIMA procedures that are consistent for a variety of residual biases to estimate the value of the long memory parameter, d, of the log rent-price ratio. We find that the semi-parametric estimation procedures robust to non-normality and heteroskedasticity errors found far more bubble regions than parametric ones. A structural break was identified in the mean and trend of all the series which when accounted for removed bubble behaviour in a number of regions. Importantly, the United States housing market showed evidence for rational bubbles at both the aggregate and regional levels. In the third and final chapter, we attempt to answer the following question: To what extend should individuals participate in the stock market and hold risky assets over their lifecycle? We answer this question by employing a lifecycle consumption-portfolio choice model with housing, labour income and time varying predictable returns where the agents are constrained in the level of their borrowing. We first analytically characterize and then numerically solve for the optimal asset allocation on the risky asset comparing the return predictability case with that of IID returns. We successfully resolve the puzzles and find equity holding and participation rates close to the data. We also find that return predictability substantially alter both the level of risky portfolio allocation and the rate of stock market participation. High factor (dividend-price ratio) realization and high persistence of factor process indicative of stock market bubbles raise the amount of wealth invested in risky assets and the level of stock market participation, respectively. Conversely, rare disasters were found to bring down these rates, the change being severe for investors in the later years of the life-cycle. Furthermore, investors following time varying returns (return predictability) hedged background risks significantly better than the IID ones.
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This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satisfied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agents’ expectations must not depend on government’s financial variables under deficit financing.
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This paper investigates the expectations formation process of economic agents about inflation rate. Using the Market Expectations System of Central Bank of Brazil, we perceive that agents do not update their forecasts every period and that even agents who update disagree in their predictions. We then focus on the two most popular types of inattention models that have been discussed in the recent literature: sticky-information and noisy-information models. Estimating a hybrid model we find that, although formally fitting the Brazilian data, it happens at the cost of a much higher degree of information rigidity than observed.
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This paper investigates the expectations formation process of economic agents about infl ation rate. Using the Market Expectations System of Central Bank of Brazil, we perceive that agents do not update their forecasts every period and that even agents who update disagree in their predictions. We then focus on the two most popular types of inattention models that have been discussed in the recent literature: sticky-information and noisy-information models. Estimating a hybrid model we fi nd that, although formally fi tting the Brazilian data, it happens at the cost of a much higher degree of information rigidity than observed.
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A theory of network-entrepreneurs or "spin-off system" is presented in this paper for the creation of firms based on the community’s social governance. It is argued that firm’s capacity for accumulation depends on the presence of employees belonging to the same social/ethnic group with expectations of "inheriting" the firm and becoming entrepreneurs once they have been selected for their merits and loyalty towards their patrons. Such accumulation is possible because of the credibility of the patrons’ promises of supporting newcomers due to high social cohesion and specific social norms prevailing in the community. This theory is exemplified through the case of the Barcelonnettes, a group of immigrants from the Alps in the South of France (Provence) who came to Mexico in the XIX Century.