Uncertainty and Learning in Stochastic Macro Models

Piero Ferri () and Anna Variato ()

International Advances in Economic Research, 2010, vol. 16, issue 3, 297-310

Abstract: Limits on information have deep economic impact and affect the conduct of economic policy. In the present paper we explore the effect of substantive uncertainty in a macro model, from both an analytical and methodological point of view. Agents are boundedly rational and make their forecasts according to different techniques and try to learn the values of the various parameters. In this context, a Markov regime switching rule, a VAR system, and recursive least square are considered and compared. As a result, we obtain a model which is mostly keynesian in nature that can be compared with the new neoclassical synthesis models. Simulations are carried out and show the possible appearence of endogenous and persistent fluctuations. Copyright International Atlantic Economic Society 2010

Keywords: Endogenous fluctuations; Micro-macro relationships; Uncertainty; Bounded rationality; Learning (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/s11294-010-9268-x

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