Policy change and learning in the RBC model

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Title: Policy change and learning in the RBC model
ISBN: 978-952-462-781-8
Author: Kaushik, Mitra ; Evans, George W. ; Honkapohja, Seppo
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2011
Series number: 22/2011
Year of publication: 2011
Publication date: 1.8.2011
Published in: Published in Journal of Economic Dynamics and Control, Volume 37, Issue 10, October 2013, Pages 1947-1971
DOI: 10.1016/j.jedc.2013.05.011
Pages: 62 s.
Keywords: suhdanteet; mallit; talouspolitiikka; finanssipolitiikka; verotus; julkiset menot; odotukset; oppiminen; ennusteet; palkat; korot;
JEL: E62; D84; E21; E43
Abstract: What is the impact of surprise and anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations? We examine this issue using the standard stochastic real business cycle model with lump-sum taxes. Agents combine knowledge about future policy with econometric forecasts of future wages and interest rates. Both permanent and temporary policy changes are analyzed. Dynamics under learning can have large impact effects and a gradual hump-shaped response, and tend to be prominently characterized by oscillations not present under rational expectations. These fluctuations reflect periods of excessive optimism or pessimism, followed by subsequent corrections. keywords: taxation, government spending, expectations, permanent and temporary policy changes, E62, D84, E21, E43
Note: Ilmestynyt myös Journal economic dynamics & control 2013 ; 37 ; 10.
Rights: https://helda.helsinki.fi/bof/copyright

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