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Least squares learning and business cycles

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  • Cellarier, Laurent L.

Abstract

This paper investigates whether the neoclassical growth framework augmented with least squares estimated heuristic rules may reproduce U.S. business cycles. I consider various assumptions about the length of the information set, the influence of contemporaneous data on current forecasts, and the limit case in which learning is completed. Calibrated to the U.S. economy, this model may generate endogenous business cycles that do not exist under perfect foresight. If random productivity shocks are introduced, then the model is more volatile than under rational expectations or constant gain learning and reproduces some key U.S. business cycles stylized facts.

Suggested Citation

  • Cellarier, Laurent L., 2008. "Least squares learning and business cycles," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 553-564, December.
    • Handle: RePEc:eee:jeborg:v:68:y:2008:i:3-4:p:553-564
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    References listed on IDEAS

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    Cited by:

    1. Piero Ferri, 2011. "Macroeconomics of Growth Cycles and Financial Instability," Books, Edward Elgar Publishing, number 14260.
    2. Caines, Colin, 2020. "Can learning explain boom-bust cycles in asset prices? An application to the US housing boom," Journal of Macroeconomics, Elsevier, vol. 66(C).
    3. Juan Carlos Castro Fernández & Juan Carlos Castro Fernández, 2022. "Big Recessions and Slow Recoveries," Documentos de Trabajo UEC 20128, Universidad Externado de Colombia.
    4. Doshchyn, Artur & Giommetti, Nicola, 2013. "Learning, Expectations, and Endogenous Business Cycles," MPRA Paper 49617, University Library of Munich, Germany.

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