Adaptive expectations, underparameterization and the Lucas critique☆

TL;DR: This work introduces the concept of Misspecification Equilibrium to dynamic macroeconomics, a stochastic process in which agents forecast optimally given their choices, with forecast model parameters and predictor proportions endogenously determined.

TL;DR: This paper derived the optimal monetary policy in a sticky price model when private agents follow adaptive learning and showed that the welfare loss entailed by the optimal policy under learning if the private sector actually has rational expectations is much smaller than if the central bank mistakenly assumes rational expectations when in fact agents are learning.

TL;DR: In this article, the authors evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank's interest rate rule, the imposition of a more restrictive loan-tovalue ratio, and the use of a modified collateral constraint that takes into account the borrower's wage income.

TL;DR: In this paper, the authors introduce excess volatility into an otherwise standard DSGE model by allowing a fraction of households to depart from fully-rational expectations, leading to large swings in house prices and household debt.

TL;DR: In this article, the Stockholm School hypothesis is used to explain how expectations are formed in the context of an isolated market with a fixed production lag, and commodity speculation is introduced into the system.

TL;DR: Methods of recursive identification deal with the problem of building mathematical models of signals and systems on-line, at the same time as data is being collected.

TL;DR: In this paper, the results of an empirical study of real output-inflation tradeoffs, based on annual time-series from eighteen countries over the years 1951-67, were examined from the point of view of the hypothesis that average real output levels are invariant under changes in the time pattern of the rate of inflation.

TL;DR: In this paper, the authors propose a statistical learning approach to predict the evolution of expectations and selection between alternative equilibria, with implications for business cycles, asset price volatility, and policy.