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Learning, Adaptive Expectations, and Technology Shocks'

dc.contributor.authorHuang, Kevin X.D.
dc.contributor.authorLiu, Zheng
dc.contributor.authorZha, Tao
dc.description.abstractThis study explores theoretical and macroeconomic implications of the self-confirming equilibrium in a standard growth model. When rational expectations are replaced by adaptive expectations, we prove that the self-confirming equilibrium is the same as the steady state rational expectations equilibrium, but that dynamics around the steady state are substantially different between the two equilibria. We show that, in contrast to citet{nWilliams03}, the differences are driven mainly by the lack of the wealth effect and the strengthening of the intertemporal substitution effect, not by escapes. As a result, adaptive expectations substantially alter the amplification and propagation mechanisms and allow technology shocks to exert much more impact on macroeconomic variables than do rational expectations
dc.publisherVanderbilt Universityen
dc.subjectSelf confirming equilibrium
dc.subjectlabor market dynamics
dc.subjectwealth and substitution effects
dc.subjecthump-shaped responses
dc.subjectJEL Classification Number: E32
dc.subjectJEL Classification Number: E37
dc.titleLearning, Adaptive Expectations, and Technology Shocks'
dc.typeWorking Paperen

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