Modelling Information, Learning and Expectations in Macroeconomics

Topics in Macroeconomics: Modelling Information, Learning and Expectations

PhD Course, Economics Department, Universitat Pompeu Fabra and Barcelona GSE, Fall 2009

Tuesdays 17.00 and Wednesdays 17.00, Room 40.152
Office Hours: Mondays 11.00-12.30, Room 23.408

The lecture on November 24 will be in room 40.146 at 15.00-17.00
There will be no lecture on November 30

Midterm: 15.00 -17.00 Friday December 3, Room 20.055 Jaume I

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 two alternative theories to the full information rational expectations hypothesis: (i) Imperfectly informed, but model consistent, expectations and (ii) boundedly rational expectations, that is, expectations formed without complete knowledge of the structure of the economy. Both theories have delivered interesting results, ranging from positive predictions about the dynamics of aggregate time series and asset prices, to normative implications about the value of public information and the design of monetary policy. 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

Homework 1 (due Tuesday November 23)

Homework 2 (due Friday December 10)

Exercise Questions for midterm

Last year's midterm

Histogram of homework and midterm results

Lecture 1
Overview and some basics
Lecture Notes on Difference Equations
Lecture Notes on Solving RE models

Lecture 2
The Kalman Filter
Lecture Notes on the Kalman Filter

Lecture 3
Island Models
Lecture Notes on Lucas Island model
Some international evidence on output-inflation tradeoffs , Lucas, AER (1973)
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
Higher Order Expectations
Slides
Forecasting the forecasts of others, Townsend, JPE (1983)
Dynamic Higher Order Expectations, Nimark (2010)

Lecture 6
The Information Revealed by Prices
Lecture Notes on The Information Revealed by Prices
On the impossibility of informationally efficient markets, Grossman and Stiglitz, AER (1980)