ECON 7335 Information, Learning and Expectations In Macro

PhD Course, Economics Department, Cornell University, Spring 2016

Mondays and Wednesdays 1:25-2:40 (URH488)

Midterm: Wednesday March 23, 4-6pm (URH262)

Overview

Many economic decisions depend on expectations about either inherently unobservable variables or about future realizations of a variable. Different theories of expectations formation will therefore have different implications for economic behavior. This course aims at equipping students with the tools needed to model alternative theories to the full information rational expectations hypothesis. The substantive results from the literature will be discussed along with the specific techniques that were employed to derive them. Lecture notes will be provided, but reading articles will also be required.


Syllabus

Sample Midterm
Instructions for report
Paper suggestions for report

Lecture 1 Overview and some basics
Lecture Notes Basics

Lecture 2 The Kalman Filter
Lecture notes on the Kalman Filter

Lecture 3 Island Models
Lecture Notes on Lucas Island model
A theory of demand shocks, Lorenzoni, AER 2009

Lecture 4 Private and Public Information
Lecture Notes Private and Public Information
Social Value of Public Information, Morris and Shin, AER (2002)
Social Value of Public Information: Comment: Morris and Shin (2002) is actually pro transparencey, not con, Svensson, AER (2006)
Social Value of Public Information: Comment: Morris and Shin (2002) is actually pro transparencey, not con: A Reply, Morris, Shin and Tong, AER (2006)

Lecture 5 Private Information and Asset Pricing
Admati (1985)
Lecture Notes on Private Information and Asset Pricing in the CARA normal model

Lecture 6 The Information Revealed by Prices
Lecture Notes on The Information Revealed by Prices
On the efficiency of competitive stock markets where traders have diverse information, Grossman, JoF (1975)
On the impossibility of informationally efficient markets, Grossman and Stiglitz, AER (1980)

Lecture 7 Social Learning
Ch 3-4 in Rational Herds, Christophe Chamley, Cambridge University Press
How Fast do Rational Agents Learn?, Vives, REStud (1993)

Lecture 8 Information theory
Ch 2 and 5 in Information Science, David Luenberger, Princeton University Press

Lecture 9 Endogenous Information Choice
Rational Inattention, Palgrave entry by Wiederholt
Information Immobility and the Home Bias Puzzle, by van Nieuwerburgh and Veldkamp, JoF (2008)
Optimal Sticky Prices under Rational Inattention, Mackowiak and Wiederholt, AER (2009)
Slides

Lecture 10 News media and delegated information acquisition
Beliefs, Coordination and Media Focus by Nimark and Pitschner
Slides

Lecture 11 Dynamic Higher Order Expectations
Forecasting the forecasts of others, Townsend, JPE (1983)
Dynamic Higher Order Expectations, Nimark (2011)
Slides

Lecture 12 Empirical Implications of Information Imperfections
Information, animal spirits, and the meaning of innovations in consumer confidence, Barsky and Sims, AER (2012)
News, Noise, and Fluctuations: An Empirical Exploration, Blanchard, L'Huillier and Lorenzoni, AER (2013)
Growth Expectations, Undue Optimism, and Short-run Fluctuations, Enders, Kleemann and Mueller (2013)
Speculation and the Bond Market: An Empirical No-arbitrage Framework, Barillas and Nimark (2014)
Slides

Lecture 13 Bounded Rationality and Learning
Evolution and Intelligent Design, Sargent, AER (2008)
The Conquest of U.S. Inflation: Learning and Robustness to Model Uncertainty, Cogley and Sargent, RED (2005)
Lecture Notes on Bounded Rationality and Learning