LEARNING AND INTERNATIONAL TRANSMISSION SHOCKS

Warwick Mckibbin () and Kang Yong Tan

CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis

Abstract: This paper studies the implications of adaptive learning in the modelling of international linkages in a two-region MSG-Cubed (MSG3) model built on micro-founded behaviours of firms and households. The nature of the transmission process under rational expectations versus the adaptive learning methodology (evans and Honkapohja, 2001) is explored. We investigate the propagation mechanism within and across borders for various shocks and policy changes within the United States : change in inflation target, fiscal policy, productivity shock, and rise in equity risk. Adaptive learning is found to change the short run sign of transmission in all cases except for the inflation target shock. Learning could also resolve the quantity anomaly puzzle in the international RBC literature. The findings suggest the choice of expectations formation scheme is crucial in large-scale macroeconomic models.

JEL-codes: D83 E60 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2006-12

Downloads: (external link)
http://cama.anu.edu.au/Working%20Papers/Papers/2007/McKibbin_Tan_12007.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in CAMA Working Papers from Australian National University, Centre for Applied Macroeconomic Analysis
Contact information at EDIRC.
Series data maintained by ().