Learning Process and Rational Expectations: An Analysis Using a Small Macroeconomic Model for New Zealand

Basdevant, Olivier

doi:10.2139/ssrn.412403

Cited by 4 publications

(6 citation statements)

References 44 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Most of the coefficients tend to converge to the values implied by the unbiasedness and efficiency hypothesis implying convergence to rational expectations. Our findings are in line with previous studies like Caskey (1985) and Basdevant (2005) which explain survey expectations on inflation as a product of a learning process following a structural change for the US and New Zealand, respectively. 24…”

supporting

confidence: 93%

“…As demonstrated by Orphanides and Williams (2002) and also supported by Basdevant (2005), learning dynamics in expectation formation has important implications for the conduct of monetary policy. These studies stress that under imperfect knowledge, where agents rely on some kind of a recursive technology to form expectations, the design of efficient monetary policy requires a more aggressive reaction to inflation than would be optimal under perfect information.…”

Section: Discussionmentioning

confidence: 82%

“…Orphanides and Williams (2002) also mention that classical tests of rationality may be falsely rejected under adaptive learning, which nests rational expectations as a limiting case. Building on Orphanides and Williams (2002), Basdevant (2005) shows that inflation expectations in New Zealand are moving towards rational expectations through a learning mechanism, although classical tests reject rationality. In a recent article, Andolfatto et al (2007) show that learning dynamics associated with occasional shifts in monetary policy regimes may lead to the incorrect inference that rational expectations hypothesis is rejected especially in small samples.…”

Section: Introductionmentioning

confidence: 99%

“…This framework allows us to observe whether there is convergence to rationality in terms of unbiasedness and efficiency. Caskey (1985) and Basdevant (2005) also use TVP estimation based on Kalman filter. However, our approach differs from these authors, since we model expectational errors, rather than the level of expectations directly.…”

mentioning

confidence: 99%

“…7 Previous studies likeCaskey (1985) andBasdevant (2005), which also use TVP estimation based on Kalman filter, model inflation expectations directly, rather than modelling the expectation errors as we do here. Our approach is useful since we know what to values the coefficients should converge under learning.…”

mentioning

confidence: 99%

See 4 more Smart Citations

Inflation expectations in Turkey: learning to be rational

Kara

Küçük-Tuğer

2010

Applied Economics

View full text Add to dashboard Cite

Turkey implemented an ambitious restructuring of the economy in the past several years, including the adoption of inflation targeting along with a floating exchange rate regime. Inflation came down from almost triple digits to single digits between 2001 and 2005. This particular episode of the Turkish economy sets a genuine case study for investigating the possible changes in the behaviour of inflation expectations upon a regime shift. Accordingly, this study analyses inflation expectations in Turkey, focusing especially on the post-2001 transition phase. We first conduct classical tests of unbiasedness and efficiency using aggregate survey data between August 2001 and October 2007 to get a statistical benchmark for rationality; we find that classical tests reject full rationality hypothesis for all series except next month's Consumer Price Index (CPI) inflation expectations. Then, we carry out Time-Varying Parameter (TVP) estimates based on a Kalman filter to see how the coefficients in the classical test equations evolve over time. This framework allows us to see whether there is convergence to rationality in terms of unbiasedness and efficiency. We find that forecast performance has improved through time, as the coefficients on the test equations shows movement towards values implied by unbiasedness and efficiency hypotheses, supporting the learning hypothesis.

show abstract

supporting

confidence: 93%

Section: Discussionmentioning

confidence: 82%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

See 3 more Smart Citations

Inflation expectations in Turkey: learning to be rational

Kara

Küçük-Tuğer

2010

Applied Economics

View full text Add to dashboard Cite

show abstract

Learning Process and Transparency of Central Bank

Holinka¹

2010

Politicka ekonomie

View full text Add to dashboard Cite

Learning process is a new approach of fi lling the gap between adaptive expectations and rational expectations. Private agents are learning new information and adjust their expectation about the infl ation and output gap. Central bank transparency is one of the key factors of learning by private agents. However the learning process is also very important aspect for central bankers to improve their credibility.

show abstract

Globalisation and Inflation in OECD Countries

Pehnelt¹

2007

SSRN Journal

View full text Add to dashboard Cite

During the last two decades, the world has experienced a remarkable process of disinflation, with average inflation rates in industrialized countries falling by 10 percentage points and an even sharper decline of the mean rate of inflation in developing countries. Parallel to the decline in inflation rates, a tremendous increase in economic integration -often referred to as globalisation -has been taking place. In this article, we analyse the effects of globalisation on inflation in OECD countries. We theoretically outline different channels through which globalisation may have influenced inflation dynamics and give an overview on the existing empirical evidence on this issue. In the empirical analysis we show that globalisation has contributed to the disinflation process in OECD countries since the 1980s. Inflation rates became much less prone to domestic parameters, especially the domestic output gap. Global factors such as the output gap of the main trading partners became more important in determining national inflation rates. Furthermore, economic freedom and the degree of globalisation are positively related to the disinflation process. Central bank independence seems to have contributed to the decline in inflation rates among OECD countries process, but the effect is rather modest. Though the inertia of inflation can still be observed, the persistence of inflation has considerably declined since the early 1990s.

show abstract

Learning Process and Rational Expectations: An Analysis Using a Small Macroeconomic Model for New Zealand

Cited by 4 publications

References 44 publications

Inflation expectations in Turkey: learning to be rational

Inflation expectations in Turkey: learning to be rational

Learning Process and Transparency of Central Bank

Globalisation and Inflation in OECD Countries

Contact Info

Product

Resources

About