NBER Working Papers and Publications by George Evans

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May 2012Liquidity Traps and Expectation Dynamics: Fiscal Stimulus or Fiscal Austerity?
with Jess Benhabib, Seppo Honkapohja: w18114
We examine global dynamics under infinite-horizon learning in New Keynesian models where the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), the intended steady state is locally but not globally stable. Unstable deflationary paths emerge after large pessimistic shocks to expectations. For large expectation shocks that push interest rates to the zero bound, a temporary fiscal stimulus or a policy of fiscal austerity, appropriately tailored in magnitude and duration, will insulate the economy from deflation traps. However "fiscal switching rules" that automatically kick in without discretionary fine tuning can be equally effective.

Liquidity Traps and Expectation Dynamics: Fiscal Stimulus or Fiscal Austerity?,” (with George Evans and Seppo Honkapohja), forthcoming, Journal of Economic Dynamics and Control, 2015. citation courtesy of

July 2011Comment on "Natural Expectations, Macroeconomic Dynamics, and Asset Pricing"
in NBER Macroeconomics Annual 2011, Volume 26, Daron Acemoglu and Michael Woodford, editors
October 2005Generalized Stochastic Gradient Learning
with Seppo Honkapohja, Noah Williams: t0317
We study the properties of generalized stochastic gradient (GSG) learning in forward-looking models. We examine how the conditions for stability of standard stochastic gradient (SG) learning both differ from and are related to E-stability, which governs stability under least squares learning. SG algorithms are sensitive to units of measurement and we show that there is a transformation of variables for which E-stability governs SG stability. GSG algorithms with constant gain have a deeper justification in terms of parameter drift, robustness and risk sensitivity.
July 1996Growth Cycles
with Seppo Honkapohja, Paul Romer: w5659
We construct a rational expectations model in which aggregate growth alternates between a low growth and a high growth state. When all agents expect growth to be slow, the returns on investment are low, and little investment takes place. This slows growth and confirms the prediction that the returns on investment will be low. But if agents expect fast growth, investment is high, returns are high, and growth is rapid. This expectational indeterminacy is induced by complementarity between different types of capital goods. In a growth cycle there are stochastic shifts between high and low growth states and agents take full account of these transitions. The rules that agents need to form rational expectations in this equilibrium are simple. The equilibrium with growth cycles is stable un...

Published: American Economic Review, Vol. 88, no. 3 (June 1998): 495-515. citation courtesy of

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