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Time-Varying Parameters and Endogenous Learning Algorithms

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Abstract

The adaptive learning has primarily focused on decreasing gain learning and constant gain learning. As pointed out theoretically by Marcet and Nicolini (2003) and empirically by Milani (2007) an endogenous learning mechanism may explain key economic behaviors, such as recurrent hyperinflation or time varying volatility. This paper evaluates the mechanism used in those papers in addition to proposing an alternative endogenous learning algorithm. The proposed algorithm outperforms the Marcet and Nicolini's algorithm in simulations and may result in exotic dynamics.

Suggested Citation

  • Eric Gaus, 2013. "Time-Varying Parameters and Endogenous Learning Algorithms," Working Papers 13-02, Ursinus College, Department of Economics.
    • Handle: RePEc:urs:urswps:13-02
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    File URL: http://webpages.ursinus.edu/egaus/Research/EndogenousGains.pdf
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    References listed on IDEAS

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    1. Evans, George W. & Ramey, Garey, 2006. "Adaptive expectations, underparameterization and the Lucas critique," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 249-264, March.
    2. John Duffy & Wei Xiao, 2007. "The Value of Interest Rate Stabilization Policies When Agents Are Learning," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2041-2056, December.
    3. McGough, Bruce, 2003. "Statistical Learning With Time-Varying Parameters," Macroeconomic Dynamics, Cambridge University Press, vol. 7(1), pages 119-139, February.
    4. Milani, Fabio, 2014. "Learning and time-varying macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 94-114.
    5. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
    6. repec:wly:soecon:v:80:2:y:2013:p:439-453 is not listed on IDEAS
    7. Eric Gaus, 2012. "Robust Stability of Monetary Policy Rules under Adaptive Learning," Working Papers 13-01, Ursinus College, Department of Economics, revised 14 Dec 2012.
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    Cited by:

    1. Gaus, Eric & Sinha, Arunima, 2017. "Characterizing investor expectations for assets with varying risk," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 990-999.
    2. Gaus, Eric & Sinha, Arunima, 2018. "What does the yield curve imply about investor expectations?," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 248-265.

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    More about this item

    Keywords

    Learning; Rational Expectations; Endogenous Learning;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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