Coherence without rationality at the zero lower bound
Standard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (incompleteness). This paper shows that deviations from full-information rational expectations mitigate concerns about incoherence and incomple...
| Hauptverfasser: | , , |
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| Format: | Journal article |
| Sprache: | English |
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Elsevier
2023
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| _version_ | 1826311517447913472 |
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| author | Ascari, G Mavroeidis, S McClung, N |
| author_facet | Ascari, G Mavroeidis, S McClung, N |
| author_sort | Ascari, G |
| collection | OXFORD |
| description | Standard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (incompleteness). This paper shows that deviations from full-information rational expectations mitigate concerns about incoherence and incompleteness. Models with no rational expectations equilibria admit self-confirming equilibria involving the use of simple mis-specified forecasting models. Completeness and coherence are restored if expectations are adaptive or if agents are less forward-looking due to some information or behavioral friction. In the case of incompleteness, the E-stability criterion selects an equilibrium. |
| first_indexed | 2024-03-07T08:11:01Z |
| format | Journal article |
| id | oxford-uuid:5de1bb0d-2c2e-409c-b7e7-81d76395bd25 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T08:11:01Z |
| publishDate | 2023 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:5de1bb0d-2c2e-409c-b7e7-81d76395bd252023-11-27T13:29:04ZCoherence without rationality at the zero lower boundJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:5de1bb0d-2c2e-409c-b7e7-81d76395bd25EnglishSymplectic ElementsElsevier2023Ascari, GMavroeidis, SMcClung, NStandard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (incompleteness). This paper shows that deviations from full-information rational expectations mitigate concerns about incoherence and incompleteness. Models with no rational expectations equilibria admit self-confirming equilibria involving the use of simple mis-specified forecasting models. Completeness and coherence are restored if expectations are adaptive or if agents are less forward-looking due to some information or behavioral friction. In the case of incompleteness, the E-stability criterion selects an equilibrium. |
| spellingShingle | Ascari, G Mavroeidis, S McClung, N Coherence without rationality at the zero lower bound |
| title | Coherence without rationality at the zero lower bound |
| title_full | Coherence without rationality at the zero lower bound |
| title_fullStr | Coherence without rationality at the zero lower bound |
| title_full_unstemmed | Coherence without rationality at the zero lower bound |
| title_short | Coherence without rationality at the zero lower bound |
| title_sort | coherence without rationality at the zero lower bound |
| work_keys_str_mv | AT ascarig coherencewithoutrationalityatthezerolowerbound AT mavroeidiss coherencewithoutrationalityatthezerolowerbound AT mcclungn coherencewithoutrationalityatthezerolowerbound |