Rational Expectation Research Papers - Academia.edu (original) (raw)

2025, Journal of Industrial Economics

We analyze how consumer preferences for one-stop shopping a¤ect the (Nash) bargaining relationships between a retailer and its suppliers. One-stop shopping preferences create 'demand complementarities'among otherwise independent products which lead to two opposing e¤ects on upstream merger incentives: …rst a standard double mark-up problem and second a bargaining e¤ect. The former creates merger incentives while the later induces suppliers to bargain separately. When buyer power becomes large enough, then suppliers stay separated which raises …nal good prices. We also show that our result can be obtained when wholesale prices are determined in a non-cooperative game, under two-part tari¤s and when products are substitutable.

2025, The Journal of Industrial Economics

2025, SSRN Electronic Journal

This paper explores how earnings variability is related to retirement wealth. Past research has demonstrated that the average American household on the verge of retirement would need to save substantially more, in order to preserve consumption flows in old age. While several socioeconomic factors have been examined that might explain such problems, prior studies have not assessed the role of earnings variability over the lifetime as a potential explanation for poor retirement prospects. Thus two workers having identical levels of average lifetime earnings might have had very different patterns of earnings variability over their lifetimes. Such differences could translate into quite different retirement wealth outcomes. This paper evaluates the effect of earnings variability on retirement wealth using information supplied by respondents to the Health and Retirement Study (HRS). This is a rich and nationally representative dataset on Americans on the verge of retirement, with responses linked to administrative records from the Social Security Administration. Our research illuminates the key links between lifetime earnings variability and retirement wealth.

2025, SSRN Electronic Journal

2025, PSL Quarterly Review

An understanding of business cycles and the optimal policy response to their presence still lies at the heart of macroeconomic research. Starting with the contributions of John Maynard Keynes, we have witnessed ongoing intellectual debate on these issues. Despite the knowledge macroeconomists have gained in both empirical and theoretical work, we still lack a clear understanding of the driving forces of business cycles, and thus continue the search for an appropriate policy response. Recently a new class of models has suggested a fresh approach to business cycle theory. labelled this class of models the "new neoclassical synthesis" (NNS), whereas other authors prefer to call them "new Keynesian models" (Galí 2002). The first title may be an overstatement, and some economists dislike it for this reason (Blanchard 1997). Nevertheless, it indicates one crucial characteristic of the new class of models, which apparently merge two formerly opposed schools of thought. Historically, the first synthesis goes back to Paul A. Samuelson and John R. Hicks who, among other economists in the 1960s, developed and presented the (original) Neoclassical Synthesis. The NNS combines crucial elements of the New Classical Theory, especially of the Real Business Cycle Theory (RBC-theory), with those of the New Keynesian Macroeconomics (NKM).

2025, the Journal of Academic Social Sciences

This paper reviews the somewhat disconnected studies on the introductory level economics textbooks. First, specifying the best-sellers, it is argued that there is visible standardization and concentration in the textbook market. Second, studies focusing on the rhetorical and ideological aspects of economics textbooks are reviewed. While the heterodoxy, with determination, asserts that economics is inherently political and ideological, the mainstream, understandably, tends to deny the ideological underpinnings of the economics they do. After coherently reviewing the narrow literature, the paper contributes by pointing out the gap in rhetoric-ideology nexus and suggesting an agenda for future research.

2025, International Journal of Academic Research in Accounting, Finance and Management Sciences

In this paper, we investigated the short-run and long-run effects of monetary policy on GDP have been investigated by co-integration analysis in Iran economy during the period 1972-2015. We used Johansen cointegration methods to demonstrate long-term relationship between the variables. The results showed that the Contractionary monetary shocks, has low effects on output whereas the effects of expansionary monetary shocks are neutral. The effects of expansionary monetary shocks after a first lag have significant effects on increasing output. Among the control variables, the investment ratio, inflation, government expenditures, oil revenues and coefficient of exchange rate have significant expected effects on production growth. In addition, there is a long-run relationship between money supply, inflation and output.

2025, Journal of Political Economy

2025

We define a continuous-time trading process for Arrow-Debreu exchange economies such that (1) At each time, myopic traders play a (weakly) dominant strategy in Mertens' (2003) limit price strategic market game ; (2) existence of continuous trade curves holds under weak conditions and in particular even if there is no static Walras equilibrium ; (3) every trade curve converges to some Pareto optimal point ; (4) for a generic choice of utilities and initial endowments, there is a piecewise unique trade curve, which is smooth and depends continuously upon initial conditions ; (5) in the 2 x 2 case, for every interior starting point, the vector field corresponding to our dynamics is real-analytic ; moreover, trade and price curves can be fully characterized and numerically simulated.

2025, Social Science Research Network

for helpful discussions of the ideas in this paper and detailed comments on earlier versions of the manuscript. Ho-Mou Wu helped me write Section 4.4, Eduardo Perez was very helpful in reading the final version of the manuscript and... more

2025, RePEc: Research Papers in Economics

We present an algorithm and software routines for computing nthorder approximate solutions to dynamic, discrete-time rational expectations models around a nonstochastic steady state. We apply these routines to investigate the optimal monetary policy with commitment in an optimizing-agent model with nominal price rigidities, subject to a fiscal policy that is stochastic, suboptimal, and exogenous to the central bank.

2025, Agricultural Economics

This paper focuses on the economic consequences of droughts for the irrigation sector. We develop a dynamic-recursive mathematical programming farm model that assumes imperfect mobility of capital and labour as well as rational expectations about future water availability. The model is calibrated to 12 representative farms belonging to three irrigation communities of the Guadalquivir Basin (south Spain) and used to simulate the 1991-1997 period, which included 3 years of intense drought. Results indicate that the drought imposed significant costs on farmers, but show also that water managers partly exacerbated these costs by allocating excessive amounts of water to irrigators in the abundant years. The model is also used to evaluate the benefits of a perfect water supply forecast and to simulate the economic gains of a voluntary water banking scheme. Results show that the benefits resulting from the perfect forecast of water supply 1 year ahead would represent a relative gain of 5%. However, a voluntary banking system would allow farmers to increase their benefits by 32-82% depending on the supply system.

2025

The objective of this paper is to gain an insight into the Greek hyperinflation that occurred during the period 1941-1946. In doing so, a relatively novel data-set in conjunction with the bound testing approach to cointegration and error correction models developed within the autoregressive distributed lag (ARDL) framework, shed additional light on the underlying long-run relationship between money supply and inflation. Granger causality tests between money supply and prices are also conducted in the effort to ascertain the direction of causality between money supply and the (hyper)inflation rate.

2025, RePEc: Research Papers in Economics

The estimation of regression models subject to linear restrictions, is a widely applied technique, however, aside from simple examples, the equivalence between the linear restricted case to the reparameterization or substitution case is rarely employed. We believe this is due to the lack of a general transformation method for changing from the definition of restrictions in terms of the unrestricted parameters to the equivalent reparameterized model and conversely, from the reparameterized model to the equivalent linear restrictions for the unrestricted model. In many cases the reparameterization method is computationally more efficient especially when estimation involves an iterative method. But the linear restriction case allows a simple method for adding and removal of restrictions. In this paper we derive a general relationship that allows the conversion between the two forms of the restricted models. Examples involving systems of demand equations, polynomial lagged equations, and splines are given in which the transformation from one form to the other are demonstrated as well as the combination of both forms of restrictions. In addition, we demonstrate how an alternative Wald test of the restrictions can be constructed using an augmented version of the reparameterized model.

2025, Journal of Economic Methodology

economic significance is well appreciated, but which also shows how statistical tests have contributed to our substantive economic understanding.

2025

The paper outlines an approach to estimation and analysis of rational expectations international cotton market. A multiple model bootstrap filter is used to compute unobserved market expectations and their distributions. Estimation results are used to analyze the welfare effects of exogenous trade shocks and government programs, with application to the national market security.

2025

The paper outlines an approach to estimation and analysis of the futures basis in the U.S. cotton market under weakly rational expectations. Given the model specification derived from the underlying dynamic profit optimization problem of the dealers, the intermediary market model is estimated using the self-organizing state-space (SOSS) approach. Estimation results are used to evaluate the prediction power of the method and test the main assumptions about the existence and consistency of the subjective rational expectations incorporated in the model.

2025

This paper addresses the question of how public announcements can affect social welfare in an experimental asset market with costly private information acquisition. More specifically, we analyze how public information affects (i) the aggregate profits and (ii) the level of inequality in the distribution of profits across subjects. Using the data of Ruiz-Buforn et al. (2018), we show that public information disclosure always increases aggregate profits, since it crowds out private information reducing the informational costs. Nevertheless, the effects on the level of wealth inequality are ambiguous. They depend on the relative precision of public and private information and, interestingly, on the realization of the public signal. Thus, public information disclosure leads to a trade-off between increasing aggregate profits and reducing the inequality level.

2025, Social Science Research Network

We propose behavioral learning equilibria as a plausible explanation of coordination of individual expectations and aggregate phenomena such as excess volatility in stock prices and high persistence in inflation. Boundedly rational agents use a simple univariate linear forecasting rule and correctly forecast the unconditional sample mean and first-order sample autocorrelation. In the long run, agents learn the best univariate linear forecasting rule, without fully recognizing the structure of the economy. The simplicity of behavioral learning equilibria makes coordination of individual expectations on such an aggregate outcome more likely. In a first application, an asset pricing model with AR(1) dividends, a unique behavioral learning equilibrium exists characterized by high persistence and excess volatility, and it is stable under learning. In a second application, the New Keynesian Phillips curve, multiple equilibria co-exist, learning exhibits path dependence and inflation may switch between low and high persistence regimes.

2025, Review of Financial Studies

We examine empirically and theoretically the relation between firms' risk and distance to consumers in a production network. We document two novel facts: firms farther away from consumers have higher risk premiums and higher exposure to aggregate productivity. We quantitatively explain these findings using a general equilibrium model featuring a multilayer production process. The economic force is "vertical creative destruction," that is, positive productivity shocks to suppliers devalue customers' assets-in-place, thereby lowering the cyclicality of downstream firms' values. We show that vertical creative destruction varies with competition and firm characteristics and generates sizable cross-sectional differences in risk premiums. (JEL G12, L14, L23, O33) We thank our editor Stijn Van Nieuwerburgh and two anonymous referees for their helpful comments. This paper also benefited from suggestions and comments by Enghin Atalay, Mikhail Chernov, Alexandre Corhay (discussant), Riccardo Colacito, Max Croce, Andres Donangelo (discussant), Winston Dou (discussant), Neal Galpin (discussant),

2025

Hey everybody, it's Kade here. Let's cut the preamble. I'm not here to politely suggest that the CRT gender gap has "nuance." I'm here to burn the disaster these pseudointellectuals have built and leave what's left for them to choke on. The Cognitive Reflection Test is not a metric of intelligence, or rationality, or mental agility. It's a parlor trick for math-sheltered economists to feel superior. And worse-it's become the holy grail for gender-essentialists who think three arithmetic riddles determine the moral worth of half the human species.

2025

Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal ? If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim.

2025, Scottish Journal of Political Economy

and Bank of England I * I would like to thank J. Livingston, Professor Carlson and staff at the Federal Reserve Bank of Philadelphia, for assistance with the data used in this study. I have benefited considerably from the ideas of John... more

2025, RePEc: Research Papers in Economics

This paper investigates the rise and fall of the IV method in macro-econometric models and its subsequent revival in micro-econometric models. The key findings are: (i) the IV method implicitly breaks the contemporaneously circular causality postulated in a simultaneousequation model (SEM) by redefining the conditional variable concerned as a suboptimal conditional expectation of it; (ii) the IV method falls out of favour in macro-econometrics mainly because of lack of empirical validations for such redefinitions; (iii) the IV method wins its popularity in micro-econometrics by its capacity to produce multiple suboptimal conditional expectations of the latent conditional variables of interest under the disguise of an SEM consistent estimator; nevertheless, (iv) such suboptimal conditional expectations give rise to the insurmountable difficulty of credibly interpreting the IV-based parameter estimates, especially in the case of prognosticated omitted variable bias. The findings highlight the methodological drawback of the estimator-centric strategy of textbook econometrics.

2025

After an introductory chapter, the thesis is divided in three parts. In the first part, chapter 2 includes domestic financial dollarisation into an otherwise standard DSGE model of a small open economy. Domestic financial dollarisation implies that some of the assets of households and some liabilities of financial intermediaries are denominated in a foreign currency. The main implication is that exchange rate swings affect the financial wealth of households and disrupt production. The chapter also derives a New-Keynesian Phillips curve augmented with agency costs. Chapter 3, sets up a framework whereby demand substitution occurs when cheaper imported goods appear and trigger a propagation mechanism in non-tradeable prices. As in the previous chapter, Chapter 3 disentangles the dynamics of inflation exploring yet another effect that explains how the fall in world inflation might drag down non-tradeable inflation in a small open economy. The second part of the thesis deals with operat...

2025, Journal of Applied Econometrics

This paper derives a method for estimating and testing the Linear Quadratic Adjustment Cost (LQAC) model when the target variable and some of the forcing variables follow I(2) processes. Based on a forward-looking error-correction formulation of the model it is shown how to obtain strongly consistent estimates of the structural long-run parameters and the adjustment cost parameter from both a linear and a non-linear cointegrating regression, where first-differences of the I(2) variables are included as regressors (multicointegration). Further, based on the estimated parameter values, it is shown how to test and evaluate the LQAC model using a VAR approach. In an empirical application using UK money demand data, the non-linear multicointegrating regression delivers an economically plausible estimate of the adjustment cost parameter. However, the exact restrictions implied by the LQAC model under rational expectations are strongly rejected.

2025, Nº.: UC3M Working Papers. …

It is well-known that if the forcing variable of a present value (PV) model is an integrated process, then the model will give rise to a particular cointegrating restriction. In this paper we demostrate that if the PV relation is exact, such that no additive error term appears in the specification, then te variables will be multicointegrated such that the cumlation of cointegration errors at one level of cointegration will cointegrate with the forcing variable. Multicointegration thus delivers a statistical property of the data that is necessary, though not sufficient, for this class of models to be valido Estimation and inference of the model are discussed and it is shown that, provided me PV relation is exact, the discount factor of the model can be estimated with arate of convergence that is faster than the usual super-consistent rate characterising estimators in the cointegration literature. Finally, the paper is completed with two empirical analyses of PV models using term structure data and farmland data, respectively.

2025, RePEc: Research Papers in Economics

We study the relationship between the rational expectations equilibrium allocations and the ex -post core of exchange economies with asymmetric information.

2025, Oxford Economic Papers-new Series

2025, Oxford Economic Papers

2025, RePEc: Research Papers in Economics

We obtain a closed-form solution to rational expectations equilibrium with transaction costs in the framework of [On the impossibility of informationally efficient markets. American Economic Review 70, 543-566]. Individual private information incorporated into prices is reduced due to suppressed trading activities by transaction costs. The equilibrium fraction of informed traders increases (decreases) with transaction costs when the costs are low (high). The informativeness of prices decreases with transaction costs.

2025

• La principal crítica contra típicos modelos macroeconómicos keynesianos es acerca de sus supuestos sobre la "pegajosidad" de los precios (esto es, la "lentitud" en el ajuste de los precios y salarios nominales, y en las respuestas a los shocks). • Investigar los fundamentos microeconómicos de esa "pegajosidad" es vital para formular modelos macroeconómicos completos, para realizar evaluaciones de bienestar y para analizar la eficacia de diversas políticas. Estos supuestos no son consistentes con el comportamiento microeconómico, por lo que la microeconomía proporciona sólidos argumentos contra la relevancia de los modelos Keynesianos. • Existen varias razones que pueden hacer que los precios y salarios nominales no se ajusten por completo hasta que la oferta y la demanda sean iguales o que las empresas no cambien sus precios y sus salarios, completa e inmediatamente en respuesta a una perturbación, tales como: la incertidumbre, la información imperfecta, los costos de renegociación, los incentivos, etc. • Pero, para poder afirmar que las perturbaciones nominales tienen influencia sobre las variables reales no basta con introducir algún tipo de desviación en los modelos Walrasianos de competencia perfecta. Todo intento por fundamentar microeconómicamente la inaplicabilidad de la dicotomía clásica exige algún tipo de imperfección nominal.

2025, Journal of Applied Econometrics

An error correction model is derived from a stochastic dynamic programming problem incorporating rational expectations. A parametric restriction is derived that allows a test for the theoretical proposition that the optimal strategy behind the error correction from entails the failure to asymptotically close the gap between the choice variable and the growing target. This is accomplished by nesting a partial adjustment model with forward‐looking expectations within the error correction paradigm. The counterintuitive behaviour embodied in the error correction model is not supported by the data in the context of a cross‐country comparison of cash balances relationships.

2025, macroeconomia avanzada 2

libro de tema de macroeconomia avanzada 2

2025

En este documento se revisan aspectos teóricos de las fluctuaciones de los agregados económicos (Business Cycles) y se resuelve analítica y numéricamente la versión log-linealizada ˗alrededor de su estado estacionario˗ de un modelo... more

2025

This paper examines the implications of changing the expectations assumption that is embedded in nearly all current macroeconomic models. The paper substitutes measured or "real" expectations for rational expectations in an array of standard macroeconomic relationships, as well as in a DSGE model. The author finds that the use of survey measures of expectations-for near-term inflation, long-term inflation, unemployment, and short-term interest rates-improves performance along a variety of dimensions. Survey expectations exhibit strong correlations to key macroeconomic variables. Those correlations may be given a structural interpretation in a DSGE context. Including survey expectations helps to identify key slope parameters in standard relationships, and eliminates the need for having lagged dependent variables in structural models that is often motivated by indexation for prices and habit formation for consumption. Including survey expectations also obviates the need for autocorrelated structural shocks in the key equations. In a head-to-head empirical test, the weight placed on the DSGE model's rational expectations is essentially zero and the weight on survey expectations is one. The paper also discusses the modeling complications that arise once the rational expectations assumption is abandoned, and proposes methods for endogenizing survey expectations in a general equilibrium macro model.

2025

A growing body of literature examines alternatives to the rational expectations hypothesis in applied macroeconomics. This paper continues this strand of research, examining the role of survey expectations in the inflation process. It reports three principal findings: (i) short-run inflation expectations appear to have a significant role in explaining U.S. inflation over the past twenty to twenty-five years; (ii) long-run expectations generally do not appear to have a direct influence on U.S. inflation over the same period, although they enter indirectly as a key determinant of the short-run expectations (the restrictions implied by "trend inflation" models of inflation are generally rejected in the data); and (iii) the paper develops a first pass at a structural model that incorporates the features discussed above, employing a "survey operator," and assesses its performance in explaining inflation in the post-war period. JEL Codes: E31, E32. * The views expressed in this article are those of the author and do not necessarily represent those of the Federal Reserve Bank of Boston or the Federal Reserve System. Author contact: Federal Reserve Bank of Boston,

2025

For years, the problems associated with the Lucas critique have loomed over empirical macroeconomics. Since the publication of the classic Lucas (1976) critique, researchers have endeavored to specify models that capture the underlying dynamic decision-making behavior of consumers and firms who require forecasts of future events. By uncovering the "deep" structural parameters that characterize these fundamental behaviors, and by explicitly modeling expectations, it is argued, one can capture the dependence of agents' behavior on the functions describing policy. However, relatively little effort has been devoted to testing the empirical importance of this critique. Can one find specifications that are policy-invariant? This paper develops a set of tests for small macroeconometric models, especially those used for monetary policy analysis, and implements them on a set of models used extensively in the literature. In particular, we attempt to test the robustness of optimizing versus non-optimizing models to changes in the monetary policy regime. In this paper we present evidence that shows that some forward-looking models from the recent literature may be less stable than their better-fitting backward-looking counterparts.

2025, Econometrica

We present a comprehensive framework for Bayesian estimation of structural nonlinear dynamic economic models on sparse grids. The Smolyak operator underlying the sparse grids approach frees global approximation from the curse of dimensionality and we apply it to a Chebyshev approximation of the model solution. The operator also eliminates the curse from Gaussian quadrature and we use it for the integrals arising from rational expectations and in three new nonlinear state space filters. The filters substantially decrease the computational burden compared to the sequential importance resampling particle filter. The posterior of the structural parameters is estimated by a new Metropolis-Hastings algorithm with mixing parallel sequences. The parallel extension improves the global maximization property of the algorithm, simplifies the choice of the innovation variances, allows for unbiased convergence diagnostics and for a simple implementation of the estimation on parallel computers. Finally, we provide all algorithms in the open source software JBendge 4 for the solution and estimation of a general class of models.

2025, Econometrica

2025

Supply chains are characterized by many activities and actors that generally pursue conflicting objectives. Coordination between them may be then necessary to align the individual objectives with the global supply chain objective and achieve optimal performance. In this paper, we propose a model that aims to assess the relative performance of three well known Coordination Contracts for a two level Supply Chain under price dependent demand. It is shown that a suitable design of the contracts could secure global system efficiency and improve the profit of all the Supply Chain actors.

2025, Intellectual economics

In this paper we propose an artificial stock market model based on the interaction of heterogeneous agents whose forward-looking behaviour is driven by the reinforcement learning algorithm combined with an evolu¬tionary selection mechanism. We use the model for the analysis of market self-regulation abilities, market efficiency and determinants of emergent properties of the financial market. Novel features of the model include a strong empha¬sis on the economic content of individual decision-making, the application of the Q-learning algorithm for driving individual behaviour, and rich market setup. A parallel version of the model which is based on the research of current changes in the market as well as on the search for newly emerged consistent patterns and which has been repeatedly used for optimal decisions' search experiments in various capital markets is presented.

2025

Building on results from Cogley and Sbordone (2005, 2008), we propose a Markov Switching approach to ascertain whether the dynamics of inflation, as constructed in the New Keynesian Phillips Curve (NKPC), is structurally invariant for the U.S. economy. We use a twostep minimum distance econometric approach, where the first step consists in modeling the reduced form as a Markov Switching Intercept and Heteroscedastic Vector AutoRegression (MSIH-VAR). We argue that the MSIH-VAR approach, as opposed to the Time-Varying Parameter VAR in Cogley and Sbordone (2005, 2008), helps capture the NKPC’s underlying rational expectation dynamics as adequately as possible, while also explaining inflation persistence. In the second step, we combine the estimates of the first step with the restrictions imposed by the theoretical NKPC equation to form a quadratic function that is minimized to estimate the structural parameters. The MSIH-VAR reveals the existence of two inflation regimes over the study period and provides measures of agents’ beliefs on the achievement of those regimes. We find that the structural parameters are significantly affected by the regime switching and conclude that the NKPC relationship is not structurally stable over the period considered.

2025, RePEc: Research Papers in Economics

In this paper we investigate the real interest parity condition in ten Eastern European transition countries during 1997-2009 period. Our sample is interesting for three reasons: It covers the second stage of economic transition in the aftermath of the collapse of socialism; the establishment of Euroland at the turn of the century: and enlargement of Euroland to include the Eastern European countries of Slovenia and Slovakia. The data enables us to investigate how the introduction of market mechanisms in the early nineties and the establishment and enlargement of Euroland acted on real interest rate convergence. We test the real interest parity condition with unit root test with and without structural breaks. Inflationary expectations are estimated in two ways: (i) under assumption of rational expectations with ex-post inflation rates and (ii) with ex-ante estimated inflation expectation using ARIMA/ARCH model. Preliminary results suggest that there is a strong evidence of stationarity and relatively weaker evidence of structural breaks.

2025, RePEc: Research Papers in Economics

tests for rationality may not have the correct size if there is feedback from innovations to future values of the regressors. It is shown that nonparametric tests reject at their nominal level and display good power in a variety of... more

2025, Applied Economics

This article studies the information content of the term structure of interest rates of Thai government bonds. Using monthly data from July 2001 to December 2013, this article tests whether the term structure contains information about future interest rates, inflation and gross domestic product (GDP) growth. The results suggest that, despite the low liquidity of the Thai government bond market, the term structure contains considerable information about future interest rates and GDP growth.