Perpetual learning and apparent long memory
This paper studies the low frequency dynamics in forward looking models where expectations are formed using perpetual learning such as constant gain least squares. We show that if the coefficient on expectations is sufficiently close to unity, perpetual learning induces strong persistence that is em...
| Main Authors: | , |
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| Format: | Journal article |
| Language: | English |
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Elsevier
2018
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| _version_ | 1797080387455811584 |
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| author | Chevillon, G Mavroeidis, S |
| author_facet | Chevillon, G Mavroeidis, S |
| author_sort | Chevillon, G |
| collection | OXFORD |
| description | This paper studies the low frequency dynamics in forward looking models where expectations are formed using perpetual learning such as constant gain least squares. We show that if the coefficient on expectations is sufficiently close to unity, perpetual learning induces strong persistence that is empirically indistinguishable from long memory. We apply this result to present value models of stock prices and exchange rates and find that perpetual learning can explain the long memory observed in the data. |
| first_indexed | 2024-03-07T00:59:17Z |
| format | Journal article |
| id | oxford-uuid:89297f88-37da-459e-8f0e-b4302235fe7a |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T00:59:17Z |
| publishDate | 2018 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:89297f88-37da-459e-8f0e-b4302235fe7a2022-03-26T22:22:36ZPerpetual learning and apparent long memoryJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:89297f88-37da-459e-8f0e-b4302235fe7aEnglishSymplectic Elements at OxfordElsevier2018Chevillon, GMavroeidis, SThis paper studies the low frequency dynamics in forward looking models where expectations are formed using perpetual learning such as constant gain least squares. We show that if the coefficient on expectations is sufficiently close to unity, perpetual learning induces strong persistence that is empirically indistinguishable from long memory. We apply this result to present value models of stock prices and exchange rates and find that perpetual learning can explain the long memory observed in the data. |
| spellingShingle | Chevillon, G Mavroeidis, S Perpetual learning and apparent long memory |
| title | Perpetual learning and apparent long memory |
| title_full | Perpetual learning and apparent long memory |
| title_fullStr | Perpetual learning and apparent long memory |
| title_full_unstemmed | Perpetual learning and apparent long memory |
| title_short | Perpetual learning and apparent long memory |
| title_sort | perpetual learning and apparent long memory |
| work_keys_str_mv | AT chevillong perpetuallearningandapparentlongmemory AT mavroeidiss perpetuallearningandapparentlongmemory |