Model uncertainty and endogenous volatility

Branch, William A.; Evans, George W.

doi:10.1016/j.red.2006.10.002

Cited by 72 publications

(37 citation statements)

References 49 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The achievement of the BRF approach (e.g. Evans 1985;Evans andHonkapohja 2001, 2003;Branch and Evans 2006, 2007, 2011Branch and McGough 2009;Branch and McGough 2011;De Grauwe 2011) is a drastic simplicity in describing the economy's dynamics, permitting transparent study of the macro implications of diverse beliefs. Dynamic stability and the impact of monetary policy are studied with relatively simple structures with clear results.…”

Section: The Impact Of Diverse Beliefs: a Brief Summary Of Results Inmentioning

confidence: 99%

Symposium: on the role of market belief in economic dynamics, an introduction

Kurz

2010

Econ Theory

View full text Add to dashboard Cite

entitled "When Are Diverse Beliefs Central?" They reflect the rapidly growing literature on the impact of diverse beliefs. It may thus be helpful to the reader if I use this introduction to highlight some ideas of this literature as reflected in the papers of this volume.As the era of Rational Expectations (in short RE) comes to a close it is important to clarify two points. First, the success of RE in disciplining macroeconomic modeling should not obscure the fact that the term "rational" is merely a label. Rationality of actions and rationality of beliefs have little to do with each other and using the term "rational" in RE has tended to brand other beliefs as "irrational." Studying axioms of belief rationality is actually a fruitful area of research that can fill the wide open space between RE and true irrational beliefs.A second point relates to private information. Not wishing to contradict RE, many adopted the device of asymmetric private information as the "cause" of diverse beliefs. Indeed, some view diverse beliefs as equivalent to asymmetric information. This is theoretically and empirically the wrong solution and in Kurz (2008Kurz ( , 2009) I explain why. It suffices to say that in large markets behavior under private information is different from behavior under diverse beliefs with common information. Also, all empirical evidence associates diverse forecasts with diverse modeling or diverse interpretation of public information. Finally, due to stochastic independence of private information over agents and time, RE models with asymmetric private information fail to deliver the key dynamic properties that are the central implications of I thank George Evans, Carsten Nielsen, Volker Wieland and Mike Wolters for constructive comments on earlier drafts of this Introduction.

show abstract

Section: The Impact Of Diverse Beliefs: a Brief Summary Of Results Inmentioning

confidence: 99%

Symposium: on the role of market belief in economic dynamics, an introduction

Kurz

2010

Econ Theory

View full text Add to dashboard Cite

show abstract

“…The analysis on autocorrelations and variances remains the same. 11 Notice that agents are assumed to know the exogenous dividend process and forecast it correctly. An exogenous dividend process is easier to forecast than endogenously determined equilibrium prices.…”

Section: The Modelmentioning

confidence: 99%

Behavioral learning equilibria

Hommes¹,

Zhu²

2014

Journal of Economic Theory

View full text Add to dashboard Cite

“…6 As shown theoretically above, the numerical results are independent of selection of the parameter values within plausible ranges, sample paths, initial values and distribution of noise. 7 In Figure 1a, we take β = 0.9. However in fact, α * is independent of β, as can be seen from (3.12).…”

Section: Numerical Analysismentioning

confidence: 99%

Behavioral Learning Equilibria

Hommes

Zhu

2012

SSRN Journal

View full text Add to dashboard Cite

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 in equilibrium correctly forecast the unconditional sample mean and first-order sample autocorrelation. In the long run, agents thus learn the best univariate linear forecasting rule, without fully recognizing the structure of the economy. The simplicity of our 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 stochastic consistent expectations equilibrium (SCEE) exists characterized by high persistence and excess volatility, and it is globally stable under learning. In a second application, the New Keynesian Phillips curve, multiple equilibria co-exist and learning exhibits path dependence and inflation may switch between low and high persistence regimes.

show abstract

Model uncertainty and endogenous volatility

Cited by 72 publications

References 49 publications

Symposium: on the role of market belief in economic dynamics, an introduction

Symposium: on the role of market belief in economic dynamics, an introduction

Behavioral learning equilibria

Behavioral Learning Equilibria

Contact Info

Product

Resources

About