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Learning and international transmission of shocks

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  • McKibbin, Warwick J.
  • Tan, Kang Yong

Abstract

This paper studies the implications of adaptive learning in the modelling of inter-country linkages in a two-region MSG G-cubed model built on micro-founded behaviors of firms and households. The nature of the transmission process under rational expectations versus adaptive learning is explored. We investigate the propagation mechanism within and across borders for various shocks and policy changes within the United States: change in inflation target, fiscal policy, productivity shock, and rise in equity risk. Adaptive learning is found to change the short run sign of transmission in most cases but this also depends on the fraction of forward-looking agents in the economy.

Suggested Citation

  • McKibbin, Warwick J. & Tan, Kang Yong, 2009. "Learning and international transmission of shocks," Economic Modelling, Elsevier, vol. 26(5), pages 1033-1052, September.
    • Handle: RePEc:eee:ecmode:v:26:y:2009:i:5:p:1033-1052
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    Cited by:

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    3. McKibbin, Warwick J. & Wilcoxen, Peter J., 2013. "A Global Approach to Energy and the Environment," Handbook of Computable General Equilibrium Modeling, in: Peter B. Dixon & Dale Jorgenson (ed.), Handbook of Computable General Equilibrium Modeling, edition 1, volume 1, chapter 0, pages 995-1068, Elsevier.
    4. Mansur, Alfan, 2014. "The Impacts of the United States Fiscal Deficit Reduction to the World Economy," MPRA Paper 93967, University Library of Munich, Germany, revised 20 Sep 2014.

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    More about this item

    Keywords

    Adaptive learning Transmission of shocks Large-scale macroeconomic model;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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