Learning the Hard Way: Expectations and the U.S. Great Depression

Pablo Aguilar and Luca Pensieroso

No 2022004, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We introduce adaptive learning – a parsimonious, convenient way to model uncertainty – in a dynamic general equilibrium model of the U.S. Great Depression. We show that even the smallest departure from rational expectations increases significantly the data mimicking ability of the model, in particular for what concerns the lack of recovery in detrended GDP after 1933. We conclude that in the case of big, traumatic events like the Great Depression, uncertainty is particularly unfavourable to the recovery phase.

Keywords: Learning; Great Depression; Dynamic general equilibrium; Bounded rationality (search for similar items in EconPapers)
JEL-codes: E13 E32 N10 (search for similar items in EconPapers)
Date: 2022-02-14
New Economics Papers: this item is included in nep-dge, nep-his and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2022004

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