This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window
Open in New Tab
Open in same window
American Economic Review: Vol. 101 No. 6 (October 2011)
AER Volume. 101, Issue 6 | 
Previous Article
Sign up for Email Alerts Follow us on Twitter
AER Forthcoming Articles
Full-text Article
Download Data Set (341.91 MB) | Online Appendix (191.36 KB)
Previous Article
Expand
Quick Tools:
Print Article Summary Email Link to this Article Export CitationSign up for Email Alerts Follow us on Twitter
Explore:
AER Forthcoming Articles
Expectations, Learning, and Business Cycle Fluctuations
Article Citation
Eusepi, Stefano, and
Bruce Preston. 2011. "Expectations, Learning, and Business Cycle Fluctuations."
American Economic Review,
101(6): 2844-72.
DOI: 10.1257/aer.101.6.2844
DOI: 10.1257/aer.101.6.2844
Abstract
This paper develops a theory of expectations-driven business cycles based on learning. Agents have incomplete knowledge about how market prices are determined and shifts in expectations of future prices affect dynamics. Learning breaks the tight link between fundamentals and equilibrium prices, inducing periods of erroneous optimism or pessimism about future returns to capital and wages which subsequent data partially validate. In a real business cycle model, the theoretical framework amplifies and propagates technology shocks. Moreover, it produces agents' forecast errors consistent with business cycle properties of forecast errors for a wide range of variables from the Survey of Professional Forecasters. (JEL C53, D83, D84, E32, E37)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (341.91 MB) | Online Appendix (191.36 KB)
Authors
Eusepi, Stefano (Federal Reserve Bank of New York)
Preston, Bruce (Columbia U and Center for Applied Macroeconomic Analysis, Australian National U)
Preston, Bruce (Columbia U and Center for Applied Macroeconomic Analysis, Australian National U)
JEL Classifications
C53: Forecasting Methods; Simulation Methods
D83: Search; Learning; Information and Knowledge; Communication; Belief
D84: Expectations; Speculations
E32: Business Fluctuations; Cycles
E37: Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
D83: Search; Learning; Information and Knowledge; Communication; Belief
D84: Expectations; Speculations
E32: Business Fluctuations; Cycles
E37: Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
