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Learning and Expectations in Dynamic Spatial Economies

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Listed:
  • Jingting Fan
  • Sungwan Hong
  • Fernando Parro

Abstract

The impact of shocks in dynamic environments depends on how forward-looking agents anticipate the path of future fundamentals that shape their decisions. We incorporate flexible beliefs about future fundamentals into a general class of dynamic spatial models, allowing beliefs to be evolving, uncertain, and heterogeneous across groups of agents. We show how to implement our methodology to study both ex-ante and ex-post shocks to fundamentals. We apply our method to two settings: an ex-ante study of the economic impacts of climate change, and an ex-post evaluation of the China productivity shock on the U.S. economy. In both cases, we study the impact of deviations from perfect foresight on different outcomes.

Suggested Citation

  • Jingting Fan & Sungwan Hong & Fernando Parro, 2023. "Learning and Expectations in Dynamic Spatial Economies," NBER Working Papers 31504, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31504
    Note: ITI
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    JEL classification:

    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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