On Model-Consistent Expectations in Macroeconomics

Abstract

In this paper we explore an alternative version of model-consistency of expectations, which allows the expectation-generating schemes to vary according to the state of accepted macroeconomic analysis. We perform an econometric exercise using standard existing models of different generations (built for the US economy) as potential expectations-forming tools. The discussion and implementation of alternative forms of model-consistency is the main purpose of the paper. As for the results, they suggest an absence of strong sensitivity to the expectations-generating schemes in past decades, while the performance of the models become problematic in recent times marked by the Great Recession. RESUMENEn este trabajo exploramos una versión alternativa de modelo-consistencia, que permite que los esquemas de generación de expectativas varíen en función del estado del análisis macroeconómico influyente. Llevamos a cabo un ejercicio econométrico usando dos modelos existentes, de distintas generaciones, elaborados para la economía de EEUU. La discusión e implementación de diferentes formas de modelo-consistencia es el propósito central del trabajo. Respecto a los resultados, sugieren ausencia de gran sensibilidad al esquema generador de expectativas en décadas pasadas, mientras que el desempeño de los modelos se vuelve problemático en tiempos recientes marcados por la Gran Recesión.

Expectations, Coordination Failures and Macro Crises

“…The arguments presented here are discussed in more length inHeymann and Pascuini (2018) andHeymann and Montes Rojas (2018).2 It may be noted here that the RE1 agent should be presumed to act as if she had identified the correct model of her environment in all the relevant dimensions. In particular, such an individual living in an open country would then include in her operational cognition kit a working representation of the pertinent aspects of the international economy.…”