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Part I The course will introduce several basic approaches to bounded rationality in macroeconomics, and discuss its implications for consumer behavior, optimal policies, and macroeconomic dynamics. We will cover adaptive learning, restricted perceptions equilibria, model switching, sparse rationality, survey experimental evidence on learning and bounded rationality, and use a DYNARE toolbox for estimation of DSGE models under adaptive learning. We will also survey a recent literature on formation of expectations, especially of inflation expectations, and on consistency of survey expectations with Full Information Rational Expectations (FIRE) assumption. Part II The course will focus on the implications of imperfect information, financial frictions and fiscal policy in macroeconomics; potentially we will discuss advantages and limitations of markets (welfare theorems, international trade, etc.). We will review models of signal extraction, sticky information and rational inattention. We will also discuss sticky-price models and the fiscal theory of price level. Poslední úprava: Papariga Anna, Mgr. (31.01.2022)
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Readings Part I
Empirical Evidence on Bounded Rationality: Surveys and Experiments
Angeletos, C.-M., Huo, Z. and K.A. Sastry (2020): “Imperfect Macroeconomic Expectations: Evidence and Theory”, NBER Macroeconomic Annual, 35, 1-86.
Assenza, T., P. Heemeijer, C. Hommes, and D. Massaro (2013): “Individual Expectations and Aggregate Macro Behavior,” Tinbergen Institute Discussion Paper 16.
Coibion, O. and Yu. Gorodnichenko (2015): “Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts." The American Economic Review, 105, pp. 2644-78.
Fuhrer, J (2017): “Expectations as a Source of Macroeconomic Persistence: Evidence From Survey Expectations in a Dynamic Macro Model.” Journal of Monetary Economics, 86, pp. 22-35.
Hommes, C., D. Massaro, and I. Salle (2019): “Monetary and Fiscal Policy Design at the Zero Lower Bound: Evidence From the Lab.” Economic Inquiry, 57, pp. 1120-40.
Weber, M., Gorodnichenko, Y. and O. Coibion (2022): “The Expected, Perceived, and Realized Inflation of U.S. Households Before and During the Covid10 Pandemic”, NBER WP 29640.
Adaptive Learning in Macroeconomics: Theory and Optimal Policy
Adam, K. (2005): “Learning to Forecast and Cyclical Behavior of Output and Inflation”, Macroeconomic Dynamics, 9, pp. 1-27. Bullard, J. and K. Mitra (2002): “Learning about Monetary Policy Rules,” Journal of Monetary Economics, 49, 1105–1129.
Bullard, J. B. (2006). “The learnability criterion and monetary policy,” Review, Federal Reserve Bank of St. Louis, pp. 203-217.
Evans, G. W. and S. Honkapohja (2001): Learning and Expectations in Macroeconomics, Princeton University Press.
Evans, G. W. and S. Honkapohja (2003): “Expectations and the Stability Problem for Optimal Monetary Policies.” Review of Economic Studies, 70, pp. 807-824.
Orphanides, A., and J. C. Williams. (2005): “The decline of activist stabilization policy: Natural rate misperceptions, learning, and expectations.” Journal of Economic Dynamics and Control, 29(11), pp. 1927-1950.
Adaptive Learning in Macroeconomics: Estimated Models
Eusepi, S. and B. Preston (2011): “Expectations, Learning, and Business Cycle Fluctuations.” American Economic Review, 101, pp. 2844–2872.
Milani, F. (2007): “Expectations, Learning and Macroeconomic Persistence.” Journal of Monetary Economics, 54, pp. 2065–2082.
Slobodyan, S., and R. Wouters. (2012a). “Learning in an Estimated Medium-Size DSGE Model,” Journal of Economic Dynamics and Control, 36(1), pp. 26-46.
Slobodyan, S., and R. Wouters. (2012b). “Estimating a Medium-Scale DSGE Model with Expectations Based on Small Forecasting Models,” American Economic Journal: Macroeconomics 4(2), pp. 65-101.
Model Selection
Brock, W., and C. Hommes (1997): “A Rational Route to Randomness.” Econometrica, 65, pp.1059-1095.
Bullard, J. B. (1994): “Learning Equilibria,” Journal of Economic Theory, 64, pp. 468-485.
Sorger, G. (1998): “Imperfect Foresight and Chaos: An Example of a Self-Fulfilling Mistake,” Journal of Economic Behavior and Organization, 33(3-4), pp.363-83.
De Grauwe, P. and J., Yuemei (2019): “Inflation Targets and the Zero Lower Bound in a Behavioral Macroeconomic Model.” Economica, 86(342). pp. 262-299.
Sparse Rationality and Inattention
Gabaix, X. (2014): “A Sparsity-Based Model of Bounded Rationality.” The Quarterly Journal of Economics 129(4), pp. 1661-1710.
Gabaix, X. (2019): “A Behavioral New Keynesian Model.” American Economic Review, 110, pp. 2271-2327.
Kamdar, R. (2019): “The Inattentive Consumer: Sentiment and Expectations”, Indiana University, mimeo. Readings Part II
Lucas island model Lucas, Robert E. "Some international evidence on output-inflation tradeoffs." The American Economic Review (1973): 326-334.
Sticky Information Mankiw, N. Gregory, and Ricardo Reis. "Sticky information versus sticky prices: a proposal to replace the New Keynesian Phillips curve." The Quarterly Journal of Economics 117.4 (2002): 1295-1328.
Rational inattention Sims, Christopher A. "Rational inattention and monetary economics." Handbook of Monetary Economics 3 (2010): 155-181.
Maćkowiak, Bartosz, and Mirko Wiederholt. "Optimal sticky prices under rational inattention." The American Economic Review 99.3 (2009): 769-803.
Interaction of fiscal and monetary policies Sargent, Thomas J., and Neil Wallace. "Some unpleasant monetarist arithmetic." Federal reserve bank of Minneapolis quarterly review 5.3 (1981): 1-17.
Sargent, Thomas J. "Reaganomics and credibility." Expectations and Inflation, Harper & Row, New York (1986): 235-252. Poslední úprava: Papariga Anna, Mgr. (31.01.2022)
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Part I The grade for this Part is based on homeworks (20%), exam (40%), and a project (40%). Part II The grade is based on participation in the class and project evaluation. Poslední úprava: Papariga Anna, Mgr. (31.01.2022)
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