Open access
Date
2016-12Type
- Working Paper
ETH Bibliography
yes
Altmetrics
Abstract
We review and evaluate methods previously adopted in the applied literature of adaptive learning in order to initialize agents’ beliefs. Previous methods are classified into three broad classes: equilibrium-related, training sample-based, and estimation-based. We conduct several simulations comparing the accuracy of the initial estimates provided by these methods and how they affect the accuracy of other estimated model parameters. We find evidence against their joint estimation with standard moment conditions: as the accuracy of estimated initials tends to deteriorate with the sample size, spillover effects also deteriorate the accuracy of the estimates of the model’s structural parameters. We show how this problem can be attenuated by penalizing the variance of estimation errors. Even so, the joint estimation of learning initials with other model parameters is still subject to severe distortions in small samples. We find that equilibrium-related and training sample-based initials are less prone to these issues. We also demonstrate the empirical relevance of our results by estimating a New Keynesian Phillips curve with learning, where we find that our estimation approach provides robustness to the initialization of learning. That allows us to conclude that under adaptive learning the degree of price stickiness is lower compared to inferences under rational expectations, whereas the fraction of backward looking price setters increases. Show more
Permanent link
https://doi.org/10.3929/ethz-a-010793139Publication status
publishedJournal / series
KOF Working PapersVolume
Publisher
KOF Swiss Economic Institute, ETH ZurichSubject
Hybrid New Keynesian Phillips curve; WIRTSCHAFTSPROGNOSEN; Initialization; MAKROÖKONOMISCHE MODELLE (OPERATIONS RESEARCH); Algorithms; Adaptive learning; Expectations; MACROECONOMIC MODELS (OPERATIONS RESEARCH); ECONOMIC FORECASTSOrganisational unit
03716 - Sturm, Jan-Egbert / Sturm, Jan-Egbert
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
Related publications and datasets
Is previous version of: http://hdl.handle.net/20.500.11850/129770
More
Show all metadata
ETH Bibliography
yes
Altmetrics