HETEROGENEITY IN INFLATION EXPECTATIONS AND MACROECONOMIC DYNAMICS UNDER EVOLUTIONARILY SATISFICING LEARNING

2020 ◽  
pp. 1-33
Author(s):  
Jaylson Jair da Silveira ◽  
Gilberto Tadeu Lima
Keyword(s):  
Empirical Evidence ◽  
Output Growth ◽  
Inflation Expectations ◽  
Forecast Errors ◽  
Time Varying ◽  
Macroeconomic Dynamics ◽  
Inflation Forecasting ◽  
Long Run ◽  
Ex Ante ◽  
Long Run Equilibrium

Drawing on the empirical evidence that heterogeneity in inflation expectations is persistent and endogenously time-varying, we embed two inflation forecasting strategies—one based on costly ex ante perfect foresight, and the second based on costless ex ante extrapolative trend-following—in a macrodynamic model. Drawing also on the empirical evidence that inflation forecast errors may have to exceed some threshold before agents abandon their previously selected forecasting strategy, we describe agents as switching between forecasting strategies according to evolutionarily satisficing learning. Convergence to a long-run equilibrium consistent with output growth, unemployment and inflation at their natural levels may be achieved even if heterogeneity in inflation forecasting strategies (with predominance of the extrapolative foresight strategy) is an attractor of an evolutionarily satisficing dynamic perturbed by mutant agents. Thus, in keeping with the empirical evidence, heterogeneity in strategies to form inflation expectations (with prevalence of bounded rationality) can be a stable long-run equilibrium.

scholarly journals Export–Output Growth Nexus Using Threshold VAR and VEC Models: Empirical Evidence from Thailand

Economies ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 60 ◽  
Author(s):  
Arisara Romyen ◽  
Jianxu Liu ◽  
Songsak Sriboonchitta
Keyword(s):  
Empirical Evidence ◽  
Output Growth ◽  
The State ◽  
Macroeconomic Policies ◽  
Vector Autoregressive ◽  
Vector Error Correction ◽  
Long Run ◽  
Relevant Variables ◽  
Output Characteristics ◽  
Long Run Equilibrium

This paper explores the relationship between export, import, and output for Thailand over the period from 1990 to 2017. The threshold vector autoregressive (VAR) and threshold vector error correction (VEC) models were applied. The empirical evidence confirms that the export-led growth hypothesis is valid, implying feedback within the export–output growth nexus. During business cycles, the export–output characteristics in economic cycles can be classified by the two-threshold VAR and VEC models. These relevant variables converge from the long-run equilibrium. As for the thresholds which are correlated, gross domestic product (GDP) vs. export and GDP vs. import exist as a long-run equilibrium relationship, while there does not seem to be a relationship of export vs. import. Furthermore, a five-year forecast was created (the period of 2018–2022). The export–output growth scenarios appear to swing upward continuously throughout the short-term trend. Therefore, policy-makers should highlight countercyclical macroeconomic policies at lower, medium, and upper regimes to strengthen the state of recovery and encourage the state of short recession.

Human capital accumulation, income distribution, and economic growth: a demand-led analytical framework

2021 ◽  
Vol 9 (3) ◽  
pp. 319-336
Author(s):  
Gilberto Tadeu Lima ◽  
Laura Carvalho ◽  
Gustavo Pereira Serra
Keyword(s):  
Human Capital ◽  
Capital Accumulation ◽  
Analytical Framework ◽  
Output Growth ◽  
Human Capital Accumulation ◽  
Capital Utilization ◽  
Tax Rate ◽  
Long Run ◽  
The Impact ◽  
Long Run Equilibrium

This paper incorporates human capital accumulation through provision of universal public education by a balanced-budget government to a demand-driven analytical framework of functional distribution and growth of income. Human capital accumulation positively impacts on workers’ productivity in production and their bargaining power in wage negotiations. In the long-run equilibrium, a rise in the tax rate (which also denotes the share of output spent in human capital formation) lowers the pre- and after-tax wage share and physical capital utilization, and thus raises (lowers) the output growth rate when the latter is profit-led (wage-led). The impact of a higher tax rate on the employment rate (which also measures human capital utilization) in the long-run equilibrium is negative (ambiguous) when output growth is wage-led (profit-led). In any case, the supply of higher-skilled workers does not automatically create its own demand.

On the convergence of evolution processes with time-varying mutations and local interaction

2001 ◽  
Vol 38 (2) ◽  
pp. 301-323 ◽  
Author(s):  
Hsiao-Chi Chen ◽  
Yunshyoung Chow
Keyword(s):  
Nash Equilibrium ◽  
Dynamic System ◽  
Convergence Rates ◽  
Evolutionary Model ◽  
Coordination Game ◽  
Local Interaction ◽  
Mutation Rates ◽  
Time Varying ◽  
Long Run ◽  
Long Run Equilibrium

This paper analyzes players’ long-run behavior in an evolutionary model with time-varying mutations under both uniform and local interaction rules. It is shown that a risk-dominant Nash equilibrium in a 2 × 2 coordination game would emerge as the long-run equilibrium if and only if mutation rates do not decrease to zero too fast under both interaction methods. The convergence rates of the dynamic system under both interaction rules are also derived. We find that the dynamic system with local matching may not converge faster than that with uniform matching.

On the convergence of evolution processes with time-varying mutations and local interaction

2001 ◽  
Vol 38 (02) ◽  
pp. 301-323 ◽  
Author(s):  
Hsiao-Chi Chen ◽  
Yunshyoung Chow
Keyword(s):  
Nash Equilibrium ◽  
Dynamic System ◽  
Convergence Rates ◽  
Evolutionary Model ◽  
Coordination Game ◽  
Local Interaction ◽  
Mutation Rates ◽  
Time Varying ◽  
Long Run ◽  
Long Run Equilibrium

This paper analyzes players’ long-run behavior in an evolutionary model with time-varying mutations under both uniform and local interaction rules. It is shown that a risk-dominant Nash equilibrium in a 2 × 2 coordination game would emerge as the long-run equilibrium if and only if mutation rates do not decrease to zero too fast under both interaction methods. The convergence rates of the dynamic system under both interaction rules are also derived. We find that the dynamic system with local matching may not converge faster than that with uniform matching.

scholarly journals LOCK-IN OF EXTRAPOLATIVE EXPECTATIONS IN AN ASSET PRICING MODEL

2006 ◽  
Vol 10 (3) ◽  
pp. 317-348 ◽  
Author(s):  
KEVIN J. LANSING
Keyword(s):  
Asset Pricing ◽  
Stock Prices ◽  
Forecast Errors ◽  
Time Varying ◽  
Pricing Model ◽  
Asset Pricing Model ◽  
Market Crashes ◽  
Long Run ◽  
Lock In ◽  
Predictability Of Returns

This paper examines an agent's choice of forecast method within a standard asset pricing model. A representative agent may choose: (1) a fundamentals-based forecast that employs knowledge of the dividend process, (2) a constant forecast that is based on a simple long-run average, or (3) a time-varying forecast that extrapolates from the last observation. I show that an agent who is concerned about minimizing forecast errors may inadvertently become “locked-in” to an extrapolative forecast. In particular, the initial use of extrapolation alters the law of motion of the forecast variable so that the agent perceives no accuracy gain from switching to one of the alternative forecast methods. The model can generate excess volatility of stock prices, time-varying volatility of returns, long-horizon predictability of returns, bubbles driven by optimism about the future, and sharp downward movements in stock prices that resemble market crashes.

scholarly journals TRADE AND FINANCIAL OPENNESS, AND OUTPUT GROWTH VOLATILITY: EVIDENCE FROM NIGERIA

2019 ◽  
Vol 13 (1) ◽  
pp. 14-30
Author(s):  
O. S. AIGHEYISI ◽  
A. H. ISIKHUEMEN
Keyword(s):  
Empirical Evidence ◽  
Financial Development ◽  
Trade Openness ◽  
Output Growth ◽  
Oil Price ◽  
Series Data ◽  
Financial Openness ◽  
Long Run ◽  
Short Run ◽  
Growth Volatility

This study investigates the effect of trade openness and financial openness on output growth volatility in Nigeria using annual time series data that span the period from 1970 to 2015. Output growth volatility is generated using an EGARCH (1,1) process, and this was regressed on indices or measures of trade openness, financial openness (using the Chinn-Ito index), oil price, financial development and exchange rate. The autoregressive distributed lag (ARDL) approach to cointegration and error correction modeling was employed for the analysis. The empirical evidence indicates that trade openness and financial openness exacerbate output growth volatility in Nigeria in the long run. Favourable crude oil price is found to play significant role in stabilizing output growth in the long run. However, the short run effect of trade openness on growth volatility is negative, implying that in the short run trade openness plays some role in reducing output growth volatility. The short run effect of financial openness on output growth volatility is also negative, but not statistically significant. Further evidence from the study is that financial development and currency depreciation also reduce growth volatility in the short run. Based on the empirical evidence, the paper recommends, as measures to reduce output growth volatility (or stabilize output growth) in Nigeria, cautious liberalization of the nation’s economy, efforts by the government to develop the nation’s financial system to expand its credit extension/provision capacity, and prevention (by the monetary authority) using appropriate policy actions, of undue appreciation of the domestic currency (the naira).    

Infrastructure mortgage in Russia: Opportunities and prospects

2019 ◽  
pp. 114-133
Author(s):  
G. I. Idrisov ◽  
Y. Yu. Ponomarev
Keyword(s):  
Federal Government ◽  
Public Debt ◽  
Budget Deficit ◽  
Expert Assessment ◽  
Inflation Expectations ◽  
Direct Impact ◽  
Long Run ◽  
Gdp Growth Rate ◽  
Negative Effect

The article shows that depending on the goals pursued by the federal government and the available interbudgetary tools a different design of infrastructure mortgage is preferable. Three variants of such mortgage in Russia are proposed, each of which is better suited for certain types of projects and uses different forms of subsidies. According to our expert assessment the active use of infrastructure mortgage in Russia can increase the average annual GDP growth rate by 0.5 p. p. on the horizon of 5—7 years. In the long run the growth of infrastructure financing through the use of infrastructure mortgage could increase long-term economic growth by 0.9 p. p., which in 20—30 years can add 20—30% of GDP to the economy. However, the change in the structure of budget expenditures in the absence of an increase in the budget deficit and public debt will cause no direct impact on monetary policy. The increase in the deficit and the build-up of public debt will have a negative effect on inflation expectations, which will require monetary tightening for a longer time to stabilize them.

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