Related papers: Time-consistent decisions and rational expectation…
This paper shows that diagnostic expectations (DE) and rational expectations (RE) are not observationally equivalent in dynamic stochastic general equilibrium (DSGE) models. Using the frequency-domain framework of Qu and Tkachenko (2012,…
Dynamic stochastic general equilibrium (DSGE) models have been an ubiquitous, and controversial, part of macroeconomics for decades. In this paper, we approach DSGEs purely as statstical models. We do this by applying two common model…
How an economic agent (a firm, an investor or a financial market) evaluates a contingent claim, say a European type of derivatives X, with maturity t? In this paper we study a mechanism of dynamic expectations and evaluations. We give the…
The thesis of this essay is that, in heterogeneous agent macroeconomics, the assumption of rational expectations about equilibrium prices is unrealistic and should be replaced. Rational expectations imply that decision makers forecast…
By generalizing the measurements on the game experiments of mixed strategy Nash equilibrium, we study the dynamical pattern in a representative dynamic stochastic general equilibrium (DSGE). The DSGE model describes the entanglements of the…
Dynamic Stochastic General Equilibrium (DSGE) models are nowadays a crucial quantitative tool for policy-makers. However, they did not emerge spontaneously. They are built upon previously established ideas in Economics and relatively recent…
Stochastic differential equations have proved to be a valuable governing framework for many real-world systems which exhibit ``noise'' or randomness in their evolution. One quality of interest in such systems is the shape of their…
We consider dynamic stochastic economies with heterogeneous agents and introduce the concept of uniformly self-justified equilibria (USJE) -- temporary equilibria for which forecasts are best uniform approximations to a selection of the…
When modelling driven steady states of matter, it is common practice either to choose transition rates arbitrarily, or to assume that the principle of detailed balance remains valid away from equilibrium. Neither of those practices is…
Standard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (incompleteness). This paper shows that deviations from full-information rational…
A two-dimensional system of differential equations with delay modelling the glucose-insulin interaction processes in the human body is considered. Sufficient conditions are derived for the unique positive equilibrium in the system to be…
Vickrey's classic single-bottleneck departure time choice equilibrium model exhibits instability under many plausible day-to-day learning dynamics. Such instability is not observed in reality -- does this difference stem from the day-to-day…
A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit…
Motivated by the lack of a suitable constructive framework for analyzing popular stochastic models of Systems Biology, we devise conditions for existence and uniqueness of solutions to certain jump stochastic differential equations (SDEs).…
For a sequence of dynamic optimization problems, we aim at discussing a notion of consistency over time. This notion can be informally introduced as follows. At the very first time step $t_0$, the decision maker formulates an optimization…
In this paper, we formulate a general time-inconsistent stochastic linear--quadratic (LQ) control problem. The time-inconsistency arises from the presence of a quadratic term of the expected state as well as a state-dependent term in the…
The notion that economies should normally be in equilibrium is by now well-established; equally well-established is that economies are almost never precisely in equilibrium. Using a very general formulation, we show that under dynamics that…
We propose two rational expectation models of transient financial bubbles with heterogeneous arbitrageurs and positive feedbacks leading to self-reinforcing transient stochastic faster-than-exponential price dynamics. As a result of the…
Delayed processes are ubiquitous in biological systems and are often characterized by delay differential equations (DDEs) and their extension to include stochastic effects. DDEs do not explicitly incorporate intermediate states associated…
We study the (weak) equilibrium problem arising from the problem of optimally stopping a one-dimensional diffusion subject to an expectation constraint on the time until stopping. The weak equilibrium problem is realized with a set of…