Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts

Frank H. Westerhoff

28 citations0/0 files storedStudies in Nonlinear Dynamics and Econometrics

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Monetary Policy and Economic Impact Economic Theory and Policy Economic theories and models

Abstract

We modify Samuelsons multiplier-accelerator model to explore the influence of expectations on fluctuations in economic activity. Within our model, the agents use a nonlinear mix of extrapolative and regressive forecast rules to predict the output. Our model is able to mimic some generic features of business cycles. In particular, consumption is procyclical and fluctuates less than output while investment is procyclical and fluctuates more than output.

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1955A BEHAVIORAL MODEL OF RATIONAL CHOICE 1984Judgment Under Uncertainty: Heuristics and Biases.1998Heterogeneous beliefs and routes to chaos in a simple asset pricing model 1993Ants, Rationality, and Recruitment 1939Interactions between the Multiplier Analysis and the Principle of Acceleration 1950A Contribution to the Theory of the Trade Cycle 1990Bulls, bears and market sheep 1982The Non-linear Accelerator and the Persistence of Business Cycles

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