Policy change and learning in the RBC model
What is the impact of surprise and anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations? We examine this issue using the standard stochastic real business cycle model with lump-sum taxes. Agents combine knowledge about future policy with...
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| Veröffentlicht in: | Journal of economic dynamics & control 2013-10, Vol.37 (10), p.1947-1971 |
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| container_end_page | 1971 |
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| container_issue | 10 |
| container_start_page | 1947 |
| container_title | Journal of economic dynamics & control |
| container_volume | 37 |
| creator | Mitra, Kaushik Evans, George W. Honkapohja, Seppo |
| description | What is the impact of surprise and anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations? We examine this issue using the standard stochastic real business cycle model with lump-sum taxes. Agents combine knowledge about future policy with econometric forecasts of future wages and interest rates. Dynamics under learning can have large impact effects and a gradual hump-shaped response, and tend to be prominently characterized by oscillations not present under rational expectations. These fluctuations reflect periods of excessive optimism or pessimism, followed by subsequent corrections. |
| doi_str_mv | 10.1016/j.jedc.2013.05.011 |
| format | Article |
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| ispartof | Journal of economic dynamics & control, 2013-10, Vol.37 (10), p.1947-1971 |
| issn | 0165-1889 1879-1743 |
| language | eng |
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| source | Access via ScienceDirect (Elsevier) |
| subjects | Agency theory Business cycles Econometrics Economic dynamics Economic policy Economic theory Expectations Government spending Interest rates Permanent policy changes Rational expectations Stochastic models Stochastic processes Studies Taxation |
| title | Policy change and learning in the RBC model |
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