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Rational Expectations Equilibria (rational + expectation_equilibrium)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Distribution within Business, Economics, Finance and Accounting

General & Introductory Finance & Investments	50%
General & Introductory Economics	33%

Selected Abstracts

A Rational Expectations Equilibrium with Informative Trading Volume

THE JOURNAL OF FINANCE, Issue 6 2009
JAN SCHNEIDER
ABSTRACT A large number of empirical studies find that trading volume contains information about the distribution of future returns. While these studies indicate that observing volume is helpful to an outside observer of the economy it is not clear how investors within the economy can learn from trading volume. In this paper, I show how trading volume helps investors to evaluate the precision of the aggregate information in the price. I construct a model that offers a closed-form solution of a rational expectations equilibrium where all investors learn from (1) private signals, (2) the market price, and (3) aggregate trading volume. [source]

The E-Correspondence Principle

ECONOMICA, Issue 293 2007
GEORGE W. EVANS
We present a new application of Samuelson's Correspondence Principle to the analysis of comparative dynamics in stochastic rational expectations models. Our version, which we call the E-correspondence principle, applies to rational expectations equilibria that are stable under least squares and closely related learning rules. With this technique it is sometimes possible to study, without explicitly solving for the equilibrium, how qualitative properties of the equilibrium are affected by changes in the model parameters. Applications to overlapping generations and New Keynesian models illustrate the potential of the technique. [source]

Announcement effects on exchange rates

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2009
Mikael Bask
Abstract An asset pricing model for exchange rate determination is presented, where technical analysis in currency trade is incorporated in the form of a moving average technique. As a result, the model has jmax+1 rational expectations equilibria (REE), where jmax is large, since jmax past exchange rates affect the current rate due to technical analysis. There is, however, a unique REE that is economically relevant, and focusing on this REE, it is shown that the exchange rate is much more sensitive to a change in money supply than when technical analysis is absent in currency trade. This result is important since it sheds light on the so-called exchange rate disconnect puzzle in international finance. Copyright © 2008 John Wiley & Sons, Ltd. [source]

Monetary Policy and Stock Prices in an Open Economy

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 8 2007
GIORGIO DI GIORGIO
monetary policy; stock prices; Taylor Rule; open-economy DSGE models; wealth effects This paper studies monetary policy in a two-country model where agents can invest their wealth in both stock and bond markets. In our economy the foreign country hosts the only active equity market where also residents of the home country can trade stocks of listed foreign firms. We show that, in order to achieve price stability, the Central Banks in both countries should grant a dedicated response to movements in stock prices driven by relative productivity shocks. Determinacy of rational expectations equilibria and approximation of the Wicksellian interest rate policy by simple monetary policy rules are also investigated. [source]

Resuscitating the cobweb cycle

JOURNAL OF FORECASTING, Issue 8 2004
Klaus Reiner Schenk-Hoppé
Abstract This article shows that permanent fluctuations in the cobweb model,though inconsistent with a rational expectations equilibrium,can be justified as being rational when reinterpreting the model in the theory of rational beliefs. Copyright © 2004 John Wiley & Sons, Ltd. [source]