EconPapers    
Economics at your fingertips  
 

A Model of Near-Rational Exuberance

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

No 200902, CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: We study how the use of judgement or “add-factors?in 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 a standard self-referential environment. Local indeterminacy is not a requirement for existence. We construct a simple asset pricing example and find that exuberance equilibria, when they exist, can be extremely volatile relative to fundamental equilibria. learning, recurrent hyperinflations, and macroeconomic policy to combat liquidity traps and deflation.

Keywords: Learning; expectations; excess volatility; bounded rationality. (search for similar items in EconPapers)
JEL-codes: E52 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-upt
Date: 2009-02-15
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.st-andrews.ac.uk/~wwwecon/CDMA/papers/wp0902.pdf (application/pdf)

Related works:
Journal Article: A MODEL OF NEAR-RATIONAL EXUBERANCE (2010) Downloads
Working Paper: A Model of Near-Rational Exuberance (2009) Downloads
Working Paper: A model of near-rational exuberance (2007) Downloads
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:san:cdmawp:0902

Access Statistics for this paper

More papers in CDMA Working Paper Series from Centre for Dynamic Macroeconomic Analysis School of Economics and Finance, Castlecliffe, The Scores, Fife, KY16 9AZ. Contact information at EDIRC.
Bibliographic data for series maintained by The School of Economics and Finance ().

 
Page updated 2019-12-05
Handle: RePEc:san:cdmawp:0902