Adaptive Partisan Theory

1999 ◽  
Vol 17 (1) ◽  
pp. 11-18 ◽  
Author(s):  
Jac C. Heckelman
Keyword(s):  
Rational Expectations ◽  
Empirical Studies ◽  
Economic Fluctuations ◽  
Adaptive Expectations ◽  
Macroeconomic Variables ◽  
Previous Evidence ◽  
Policy Model ◽  
Partisan Theory ◽  
Incumbent Party ◽  
Party Power

Abstract Previous empirical studies designed to test the rational expectations partisan model of Alesina [1987] have generally looked for changes in real macroeconomic variables following a change in party power (incumbent party loss), whereas the model predicts these variables should fluctuate in a predictable manner even when the incumbent party is reelected. It is shown in this paper that the previous evidence is supportive of a partisan policy model where agents employ adaptive expectations, in which case only changes in party power lead to partisan economic fluctuations of real variables.

scholarly journals Can Information Heterogeneity Explain the Exchange Rate Determination Puzzle?

2006 ◽  
Vol 96 (3) ◽  
pp. 552-576 ◽  
Author(s):  
Philippe Bacchetta ◽  
Eric van Wincoop
Keyword(s):  
Exchange Rate ◽  
Empirical Evidence ◽  
Rational Expectations ◽  
Exchange Rate Volatility ◽  
Order Flow ◽  
Macroeconomic Variables ◽  
Symmetric Information ◽  
Macroeconomic Fundamentals ◽  
The Exchange Rate ◽  
Exchange Rate Changes

Empirical evidence shows that most exchange rate volatility at short to medium horizons is related to order flow and not to macroeconomic variables. We introduce symmetric information dispersion about future macroeconomic fundamentals in a dynamic rational expectations model in order to explain these stylized facts. Consistent with the evidence, the model implies that (a) observed fundamentals account for little of exchange rate volatility in the short to medium run, (b) over long horizons, the exchange rate is closely related to observed fundamentals, (c) exchange rate changes are a weak predictor of future fundamentals, and (d) the exchange rate is closely related to order flow.

Impact of Macroeconomic Variables on Exchange Rate Uncertain

2021 ◽  
Vol 17 (3) ◽  
pp. 47-55
Author(s):  
Jane Kaboro ◽  
Naftaly Mose
Keyword(s):  
Exchange Rate ◽  
Monetary Union ◽  
Empirical Studies ◽  
Ordinary Least Squares ◽  
Exchange Rate Uncertainty ◽  
Member States ◽  
East African Community ◽  
Macroeconomic Variables ◽  
Explanatory Variables ◽  
Negative Effect

Abstract Macroeconomic convergence is critical for member states to achieve the level of harmonization required for establishing a stable and resilient monetary union. The East African Community (EAC) member states, therefore, established set targets for macroeconomic convergence, intending to eliminate exchange rate uncertainty within the bloc and reduce the costs of the monetary union. However, recent empirical studies indicate that the rate of convergence of the member states to the set macroeconomic targets has been very slow, resulting in high exchange rate uncertainty within the region. It is against this backdrop that this research was conceptualized to examine the influence of convergence in macroeconomic variables on the exchange rate uncertainty of EAC states using secondary panel data. The study made use of standard deviation and the Levin Lin Chu (LLC) test to determine convergence and unit root respectively. The panel ordinary least squares (OLS) regression findings showed that all the explanatory variables had a negatively significant effect on exchange rate uncertainty. This implies that convergence in macroeconomic variables among the member countries slows exchange rate uncertainty. Thus, policy should be made towards controlling this negative effect resulting from macroeconomic variables as East Africa bids for monetary union.

scholarly journals Policy Model for Muslim State Inflation Control

2021 ◽  
Vol 9 (1) ◽  
pp. 93-105
Author(s):  
Hamdan Firmansyah
Keyword(s):  
Economic Growth ◽  
Adverse Effects ◽  
Income Distribution ◽  
Economic Activity ◽  
Important Indicator ◽  
Macroeconomic Variables ◽  
Policy Model ◽  
External Balance

Inflation is a problem which is not simple and is classified as an economic disease. Inflation is one important indicator in analyzing a country's economy, especially with regard to its broad impact on macroeconomic variables: economic growth, external balance, competitiveness, and even income distribution. Inflation is characterized by high and continuous increases in prices not only causing some adverse effects on economic activity, but also on the prosperity of individuals and society. An increase in the price of one or two items alone cannot be called inflation, unless the increase extends to an increase in the majority of other goods.

scholarly journals Macroeconomic Factors and Equity Prices: An Empirical Investigation by Using ARDL Approach

2008 ◽  
Vol 47 (4II) ◽  
pp. 501-513 ◽  
Author(s):  
Arshad Hasan ◽  
Zafar Mueen Nasir
Keyword(s):  
Empirical Studies ◽  
Testing Procedure ◽  
Bounds Testing ◽  
Macroeconomic Factors ◽  
Equity Prices ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Ardl Approach ◽  
The Impact ◽  
The Relationship

The relationship between macroeconomic variables and the equity prices has attracted the curiosity of academicians and practitioners since the publication of seminal paper of Chen, et al. (1986). Many empirical studies those tested the relationship reveal that asset pricing theories do not properly identify macroeconomic factors that influence equity prices [Roll and Ross (1980); Fama (1981); Chen, et al. (1986); Hamao (1986); Faff (1988); Chen (1991); Maysami and Koh (2000) and Paul and Mallik (2001)]. In most of these studies, variable selection and empirical analyses is based on economic rationale, financial theory and investors’ intuition. These studies generally apply Eagle and Granger (1987) procedure or Johanson and Jusilieus (1990, 1991) approach in Vector Auto Regressor (VAR) Framework. In Pakistan, Fazal (2006) and Nishat (2001) explored the relationship between macroeconomic factors and equity prices by using Johanson and Jusilieus (1990, 1991) procedure. The present study tests the relationship between macroeconomic variables such as inflation, industrial production, oil prices, short term interest rate, exchange rates, foreign portfolio investment, money supply and equity prices by using Auto Regressive Distributive Lag (ARDL) bounds testing procedure proposed by Pesaran, Shin, and Smith (1996, 2001). The ARDL approach in an errorcorrection setting has been widely applied to examine the impact of macroeconomic factors on economic growth but it is strongly underutilised in the capital market filament of literature. This methodology has a number of advantages over the other models. First, determining the order of integration of macroeconomic factors and equity market returns is not an important issue here because the Pesaran ARDL approach yields consistent estimates of the long-run coefficients that are asymptotically normal irrespective of whether the underlying regressors are I(0) or I(1) and of the extent of cointegration. Secondly, the ARDL approach allows exploring correct dynamic structure while many econometric procedures do not allow to clearly distinguish between long run and short run relationships.

scholarly journals ROBUSTNESS OF ADAPTIVE EXPECTATIONS AS AN EQUILIBRIUM SELECTION DEVICE

2003 ◽  
Vol 7 (1) ◽  
pp. 89-118 ◽  
Author(s):  
Timothy Van Zandt ◽  
Martin Lettau
Keyword(s):  
Rational Expectations ◽  
Dynamic Models ◽  
Equilibrium Selection ◽  
Steady States ◽  
Olg Model ◽  
Adaptive Expectations ◽  
Learning Rules ◽  
Long Run ◽  
Adaptive Expectation ◽  
Endogenous Variables

Dynamic models in which agents' behavior depends on expectations of future prices or other endogenous variables can have steady states that are stationary equilibria for a wide variety of expectations rules, including rational expectations. When there are multiple steady states, stability is a criterion for selecting among them as predictions of long-run outcomes. The purpose of this paper is to study how sensitive stability is to certain details of the expectations rules, in a simple OLG model with constant government debt that is financed through seigniorage. We compare simple recursive learning rules, learning rules with vanishing gain, and OLS learning, and also relate these to expectational stability. One finding is that two adaptive expectation rules that differ only in whether they use current information can have opposite stability properties.

BELIEF-TWISTING SHOCKS AND THE MACROECONOMY

2018 ◽  
Vol 22 (7) ◽  
pp. 1844-1858
Author(s):  
Jacek Suda
Keyword(s):  
Stochastic Process ◽  
Great Depression ◽  
Rational Expectations ◽  
Bayesian Learning ◽  
Prior Belief ◽  
Macroeconomic Performance ◽  
Macroeconomic Variables ◽  
The Great Depression ◽  
Data Generating Process

I study the role of shocks to beliefs combined with Bayesian learning in a standard equilibrium business cycle framework. In particular, I examine how a prior belief arising from the Great Depression may have influenced the macroeconomy during the last 75 years. In the model, households hold twisted beliefs concerning the likelihood and persistence of recession and boom states that are affected by the Great Depression. These initial beliefs are substantially different from the true data generating process and are only gradually unwound during subsequent years. Even though the driving stochastic process for technology is unchanged over the entire period, the nature of macroeconomic performance is altered considerably for many decades before eventually converging to the rational expectations equilibrium. This provides some evidence of the lingering effects of beliefs-twisting events on the behavior of macroeconomic variables.

scholarly journals UM ESTUDO EMPÍRICO DOS CICLOS POLÍTICO-ECONÔMICOS NO BRASIL

2009 ◽  
Vol 21 (40) ◽  
Author(s):  
Athos Prates da Silveira Preussler ◽  
Marcelo Savino Portugal
Keyword(s):  
Interest Rates ◽  
Empirical Studies ◽  
Great Influence ◽  
Policy Instruments ◽  
The Political ◽  
Business Cycle Theory ◽  
Vote Decision ◽  
Macroeconomic Variables ◽  
Econometric Tests ◽  
The Government

The political business cycle theory suggests that economic fluctuations can be explained by the electoral calendar. Knowing that economic performance has great influence in the electorate vote decision, the incumbent may try to manipulate the economy policy in order to maximize the chances of victory of the government candidate. Empirical studies that aimed to test this hypothesis have found evidence of political opportunism as much on macroeconomic variables as on the political economy instruments. The present paper has the objective to test the hypothesis of political opportunism on macroeconomic variables, on fiscal policy instruments and interest rates in Brazil between 1980 and 2000. The econometric tests we will use autoregressive integrated moved average models (ARIMA) with intercept dummy variables in the months that precede the elections. The results confirm the hypothesis of political opportunism in the inflation rate and in the total expenditure of the federal government.

scholarly journals STABILITY AND CYCLES IN A COBWEB MODEL WITH HETEROGENEOUS EXPECTATIONS

2005 ◽  
Vol 9 (5) ◽  
pp. 630-650 ◽  
Author(s):  
LAURENCE LASSELLE ◽  
SERGE SVIZZERO ◽  
CLEM TISDELL
Keyword(s):  
Steady State ◽  
Rational Expectations ◽  
Heterogeneous Beliefs ◽  
Flip Bifurcation ◽  
Adaptive Expectations ◽  
Heterogeneous Expectations ◽  
Cobweb Model ◽  
Limited Memory

We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark–Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.

scholarly journals On Testing for Speculative Bubbles

1990 ◽  
Vol 4 (2) ◽  
pp. 85-101 ◽  
Author(s):  
Robert P Flood ◽  
Robert J Hodrick
Keyword(s):  
Stock Prices ◽  
Rational Expectations ◽  
Empirical Studies ◽  
Empirical Work ◽  
Free Markets ◽  
Equity Prices ◽  
Speculative Bubbles ◽  
Market Participants ◽  
Current State ◽  
Rational Bubble

The possibility that movements in prices could be due to the self-fulfilling prophecies of market participants has long intrigued observers of free markets. This paper surveys the current state of the empirically-oriented literature concerning rational dynamic indeterminacies, by which we mean a situation of self-fulfilling prophecy within a rational expectations model. Empirical work in this area concentrates primarily on indeterminacies in price levels, exchange rates, and equity prices. We first examine a particular type of explosive indeterminacy, usually called a rational bubble, in an example of the market for equities. Then, we consider empirical work relating to price-level and exchange-rate indeterminacies and empirical studies of indeterminacies in stock prices. Finally, we take up some interpretive issues.

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