EconPapers    
Economics at your fingertips  
 

Near-Rational Exuberance

James Bullard, George Evans () and Seppo Honkapohja ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We study how the use of judgement or “add-factors” in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We isolate conditions under which new phenomena, which we call exuberance equilibria, can exist in standard macroeconomic environments. Examples include a simple asset pricing model and the New Keynesian monetary policy framework. Inclusion of judgement in forecasts can lead to self-fulfilling fluctuations, but without the requirement that the underlying rational expectations equilibrium is locally indeterminate. We suggest ways in which policymakers might avoid unintended outcomes by adjusting policy to minimize the risk of exuberance equilibria. Key words: Learning, expectations, excess volatility, bounded rationality, monetary policy

JEL-codes: E52 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-for and nep-mac
Date: 2005-10
Note: Ma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe0546.pdf (application/pdf)

Related works:
Working Paper: Near-Rational Exuberance (2006) Downloads
Working Paper: Near-rational exuberance (2005) Downloads
Working Paper: Near-rational exuberance (2004) Downloads
Working Paper: Near-Rational Exuberance (2004)
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:cam:camdae:0546

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().

 
Page updated 2019-12-08
Handle: RePEc:cam:camdae:0546