Stationarity of econometric learning with bounded memory and a predicted state variable
Damjanovic, Tatiana; Girdenas, Sarunas; Liu, Keqing
Date: 2015
Journal
Economics Letters
Publisher
Elsevier
Publisher DOI
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Abstract
In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random ...
In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coefficient autoregressive process and we prove that this process is covariance stationary.
Economics
Faculty of Environment, Science and Economy
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