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Learning and Expectations in Dynamic Spatial Economies

Jingting Fan, Sungwan Hong and Fernando Parro

No 31504, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The impact of shocks in dynamic environments depends on how forward-looking agents anticipate the path of future fundamentals that shape their decisions. We incorporate flexible beliefs about future fundamentals into a general class of dynamic spatial models, allowing beliefs to be evolving, uncertain, and heterogeneous across groups of agents. We show how to implement our methodology to study both ex-ante and ex-post shocks to fundamentals. We apply our method to two settings: an ex-ante study of the economic impacts of climate change, and an ex-post evaluation of the China productivity shock on the U.S. economy. In both cases, we study the impact of deviations from perfect foresight on different outcomes.

JEL-codes: F1 F11 F16 F18 Q54 R11 R13 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-env and nep-geo
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