Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5099390 | Journal of Economic Dynamics and Control | 2010 | 17 Pages |
Abstract
This paper introduces dynamic predictor selection into a New Keynesian model with heterogeneous expectations and examines its implications for monetary policy. We extend Branch and McGough (2009) by incorporating endogenous time-varying predictor proportions along the lines of Brock and Hommes (1997). We find that periodic orbits and complex dynamics may arise even if the model under rational expectations has a unique stationary solution. The qualitative nature of the non-linear dynamics turns on the interaction between hawkishness of the government's policy and the extrapolative behavior of non-rational agents.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
William A. Branch, Bruce McGough,