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# Alberto González Pandiella

- 7 April 2011
- WORKING PAPER SERIES - No. 1316Details
- Abstract
- Rational expectations has been the dominant way to model expectations, but the literature has quickly moved to a more realistic assumption of boundedly rational learning where agents are assumed to use only a limited set of information to form their expectations. A standard assumption is that agents form expectations by using the correctly specified reduced form model of the economy, the minimal state variable solution (MSV), but they do not know the parameters. However, with medium-sized and large models the closed-form MSV solutions are difficult to attain given the large number of variables that could be included. Therefore, agents base expectations on a misspecified MSV solution. In contrast, we assume agents know the deep parameters of their own optimising frameworks. However, they are not assumed to know the structure nor the parameterisation of the rest of the economy, nor do they know the stochastic processes generating shocks hitting the economy. In addition, agents are assumed to know that the changes (or the growth rates) of fundament variables can be modelled as stationary ARMA (p,q) processes, the exact form of which is not, however, known by agents. This approach avoids the complexities of dealing with a potential vast multitude of alternative mis-specified MSVs. Using a new Multi-country Euro area Model with Boundedly Estimated Rationality we show this approach is compatible with the same limited information assumption that was used in deriving and estimating the behavioural equations of different optimizing agents. We find that there are strong differences in the adjustment path to the shocks to the economy when agent form expectations using our learning approach compared to expectations formed under the assumption of strong rationality. Furthermore, we find that some variation in expansionary fiscal policy in periods of downturns compared to boom periods.
- JEL Code
**C51**: Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation**D83**: Microeconomics→Information, Knowledge, and Uncertainty→Search, Learning, Information and Knowledge, Communication, Belief**D84**: Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations**E17**: Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications**E32**: Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles

- 7 April 2011
- WORKING PAPER SERIES - No. 1315Details
- Abstract
- The model presented here is a New estimated medium-scale Multi-Country Model (NMCM) which covers the five largest euro area countries and is used for forecasting and scenarios analysis at the European Central Bank. The model has a tight theoretical structure which allows for non-unitary elasticity of substitution, non-constant augmenting technical progress and heterogeneous sectors with differentiated price and income elastiticites of demand across sectors. Furthermore, it has the explicit inclusion of expectations on the basis of three optimising private sector decision making units: i.e. firms, trade unions and households, where output is in the short run demand-determined and monopolistically competing firms set prices and factor demands. Labour is indivisible and monopoly-unions set wages and households make consumption/saving decisions. We assume agents optimise under limited information where each agent knows only the parameters related to his/her optimization problem. Therefore we estimate with GMM, which implicitly assumes limited information boundedly rational expectations. In this paper we provide some simulation results under the assumption of model-consistent rational expectations, we show that there is some heterogeneity across countries and that the reactions of the economies to shocks depends strongly on whether the shocks are pre-announced, announced and credible or unannounced and uncredible.
- JEL Code
**C51**: Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation**C6**: Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling**E5**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit

- 2 December 2014
- WORKING PAPER SERIES - No. 1745Details
- Abstract
- The model presented here is an estimated medium-scale model for the United States (US) economy developed to forecast and analyse policy issues for the US. The model is specified to track the deviation of the medium- run developments from the balanced-growth-path via an estimated CES production function for the private sector, where factor augmenting technical progress is not constrained to evolve at a constant rate. The short-run deviations from the medium run are estimated based on three optimising private sector decision making units: firms, trade unions and households. We assume agents optimise under limited-information model-consistent learning, where each agent knows the parameters related to his/her optimization problem. Under this learning approach the effect of a monetary policy shock on output and inflation is more muted but persistent than under rational expectations, but both specifications are broadly comparable to other US macro models. Using the learning version, we .find stronger expansionary effects of an increase in government expenditure during periods of downturns compared to booms.
- JEL Code
**C51**: Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation**C6**: Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling**E5**: Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit

- 28 August 2015
- OCCASIONAL PAPER SERIES - No. 165Details
- Abstract
- This paper analyses the challenges that high public debt and ageing populations pose to medium-term growth. First, macroeconometric model simulations suggest that medium-term growth can benefit from credible fiscal consolidation, partly through reductions in sovereign risk premia. Second, a disaggregated growth accounting exercise suggests that the impact of population ageing on medium-term growth can be mitigated by structural reforms boosting labour force participation. Finally, general equilibrium models suggest that pay-as-you-go public pension systems will require reforms combining lower benefits, a later retirement age and higher social contributions. These findings suggest several policy recommendations: (a)
- JEL Code
**E17**: Macroeconomics and Monetary Economics→General Aggregative Models→Forecasting and Simulation: Models and Applications**E23**: Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Production**E24**: Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital**E62**: Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy**F47**: International Economics→Macroeconomic Aspects of International Trade and Finance→Forecasting and Simulation: Models and Applications**J1**: Labor and Demographic Economics→Demographic Economics