Learning and Subjective Expectation Formation: A Recurrent Neural Network Approach

Chenyu Hou ()
Additional contact information
Chenyu Hou: Simon Fraser University, https://www.sfu.ca/economics/about/faculty/current/sev--chenyu--hou/

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: Most empirical studies on expectation formation models share a common dynamic structure but impose different functional form restrictions. I propose a flexible non-parametric method that maintains this dynamic structure to estimate a model of expectation formation using Recurrent Neural Networks. Applying this approach to data on macroeconomic expectations from the Michigan Survey of Consumers and a rich set of signals, I document three novel findings: (1) agents’ expectations about the future economic condition have asymmetric and non-linear responses to signals; (2) agents’ attentions shift from signals about the current state to signals about the future as the economic condition deteriorates ; (3) the content of signals on economic conditions plays the most important role in creating the attention-shift. Double Machine Learning approach is used to obtain statistical inferences of these empirical findings. Finally, I show these stylized facts can be generated by a model with rational inattention, in which information endogenously becomes more valuable when economic status worsens.

Date: 2023-04
New Economics Papers: this item is included in nep-big and nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sfu.ca/repec-econ/sfu/sfudps/dp23-13.pdf (application/pdf)

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sfu:sfudps:dp23-13

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, Simon Fraser University Department of Economics, Simon Fraser University, 8888 University Drive, Burnaby, BC, V5A 1S6, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by Working Paper Coordinator ().