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Looking Backward and Looking Forward

Zhengyuan Gao () and Christian Hafner ()
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Zhengyuan Gao: Center for Operations Research and Econometrics (CORE), Universite Catholique de Louvain, Voie du Roman Pays 34, B-1348 Louvain-la-Neuve, Belgium

Econometrics, 2019, vol. 7, issue 2, 1-24

Abstract: Filtering has had a profound impact as a device of perceiving information and deriving agent expectations in dynamic economic models. For an abstract economic system, this paper shows that the foundation of applying the filtering method corresponds to the existence of a conditional expectation as an equilibrium process. Agent-based rational behavior of looking backward and looking forward is generalized to a conditional expectation process where the economic system is approximated by a class of models, which can be represented and estimated without information loss. The proposed framework elucidates the range of applications of a general filtering device and is not limited to a particular model class such as rational expectations.

Keywords: perception; filter; rational expectations; estimation (search for similar items in EconPapers)
JEL-codes: B23 C C00 C01 C1 C2 C3 C4 C5 C8 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Looking backward and looking forward (2019)
Working Paper: Looking Backward and Looking Forward (2016) Downloads
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