Bruce McGough

Bruce McGough
University of Oregon | UO · Department of Economics

PhD

About

57
Publications
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958
Citations

Publications

Publications (57)
Article
In a broad class of non-linear representative agent models, represented by a system of difference equations, we replace rational expectations with linear forecast models conditioning on a predetermined set of regressors. Within this framework, a restricted perceptions equilibrium (RPE) corresponds to a forecast rule that is optimal within that clas...
Article
This paper shows that belief‐driven economic fluctuations are a general feature of many determinate macroeconomic models. In environments with hidden state variables, forecast‐model misspecification can break the link between indeterminacy and sunspots by establishing the existence of “statistical sunspots” in models that have a unique rational exp...
Article
Using the bounded rationality implementation developed in Evans et al. (2021) , we consider unemployment dynamics driven by aggregate productivity shocks within a McCall-type labor-search model. We find that bounded rationality magnifies the impact effect of a decline in productivity on unemployment. Boundedly rational agents are overly pessimistic...
Article
We consider boundedly-rational agents in McCall's model of intertemporal job search. Agents update over time their perception of the value of waiting for an additional job offer using value-function learning. A first-principles argument applied to a stationary environment demonstrates asymptotic convergence to fully optimal decision-making. In envi...
Article
We demonstrate existence, and stability under adaptive learning, of restricted perceptions equilibria in a nonlinear cobweb model.
Article
We introduce a new class of solutions to nonlinear forward-looking models called near-rational sunspot equilibria (NRSE). NRSE are natural nonlinear extensions of the usual sunspot equilibria associated with the linearized version of the economy, and are near-rational in that agents use the optimal linear forecasting model when forming expectations...
Article
This paper constructs a two‐period overlapping generations model of human capital investment decisions where a microloan program designed to finance entrepreneurial activities is active. It is shown that, in the presence of human capital externalities, microloans that are small and have immediate repayment can be growth depressing, and welfare decr...
Article
The conventional policy perspective is that lowering the interest rate increases output and inflation in the short run, while maintaining inflation at a higher level requires a higher interest rate in the long run. In contrast, it has been argued that a Neo‐Fisherian policy of setting an interest‐rate peg at a fixed higher level will increase the i...
Article
The robustness of stability under learning to observability of exogenous shocks is examined. Regardless of observability assumptions, the minimal state variable solution is robustly stable under learning provided the expectational feedback is not both positive and large, while the nonfundamental solution is never robustly stable. Overlapping genera...
Preprint
Full-text available
Within the standard RBC model we examine issues of expectational coordination on the unique rational expectations equilibrium. We show the sensitivity of agents' plans and decisions to their short-run and long-run expectations is too great to trigger eductive coordination in a world of rational agents who are endowed with knowledge of the economic...
Article
Full-text available
The importance of understanding the relationship between macroeconomics and finance was brought into sharp relief by the recent financial crisis and ensuing recession. The papers collected in this Symposium and discussed in this Introduction attempt to shed light on this relationship. (JEL C14, C20, E30, G10)
Preprint
Full-text available
This paper shows that belief-driven economic fluctuations are a general feature of many determinate macroeconomic models. Model misspecification can break the link between indeterminacy and sunspots by establishing the existence of "statistical sunspots" in models that have a unique rational expectations equilibrium. Building on the insights of Mar...
Research
Full-text available
This paper investigates whether sunspot equilibria are stable under adaptive learning when there exists private information that makes agents' learning and their forecasts heterogeneous. Nakagawa (2015) shows that the existence about private information expands the regions of structural parameters allowing the economy to be learnable. Our paper inc...
Article
Heterogeneous beliefs are introduced into the monetary economy of Lagos and Wright (2005) and the implications for monetary equilibria are considered. An endogenous fraction of agents hold rational expectations and the remaining agents employ an adaptive learning rule similar to Evans and Honkapohja (2001) and Brock and Hommes (1997). Three primary...
Article
Full-text available
This paper studies adaptive learning in economic environments subject to recurring structural change. Stochastically evolving institutional and policy-making features can be described by regime-switching rational expectations models whose parameters evolve according to a finite state Markov process. We demonstrate that in non-linear models of this...
Article
We examine the stability under learning (E-stability) of sunspot equilibria in non-convex real business cycle models. The production technology is Cobb–Douglas with externalities generated by factor inputs. We establish that, with a general utility function, the well-known Benhabib–Farmer condition (Benhabib and Farmer, 1994) – that the labor-deman...
Article
Full-text available
Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the literature: Eulerequation learning, which assumes that consump...
Article
Full-text available
Limited human capital investment is a common characteristic of low-income countries despite the fact that estimated returns to educational investment in low-income countries are generally higher than in high-income countries. Empirical evidence suggests that income and credit constraints can only account for a small part of this underinvestment. Re...
Article
Full-text available
This paper studies the implications for business cycle dynamics of heterogeneous expectations in a stochastic growth model. The assumption of homogeneous, rational expectations is replaced with a heterogeneous expectations model where a fraction of agents hold rational expectations and the remaining fraction adopt parsimonious forecasting models th...
Article
Full-text available
Within the standard RBC model we examine issues of expectational coordination on the unique rational expectations equilibrium. We show sensitivity of agents’ plans and decisions to their short‐run and long‐run expectations is too great to trigger eductive coordination in a world of rational agents who are endowed with knowledge of the economic stru...
Article
Full-text available
This paper constructs a two-period overlapping generations model of human capital investment decisions where a microloan program designed to finance entrepreneurial activities is active. It is shown that, in the presence of human capital externalities (social returns to education) there exists a range of microloan amounts that are growth depressing...
Article
This paper introduces dynamic predictor selection into a New Keynesian model with heterogeneous expectations and examines its implications for monetary policy. We extend Branch and McGough (2009) by incorporating endogenous time-varying predictor proportions along the lines of Brock and Hommes (1997). We find that periodic orbits and complex dynami...
Article
Full-text available
We consider optimal monetary policy in New Keynesian models with inertia due to lagged effects of inflation and output. We characterize the conditions for the unconditionally optimal equilibrium and compare them with those identifying optimality from the timeless perspective. Implementation of optimal policy is considered via construction of suitab...
Article
Within a New Keynesian model, we incorporate bounded rationality at the individual agent level, and we determine restrictions on expectations operators sufficient to imply aggregate IS and AS relations of the same functional form as those under rationality. This result provides dual implications: the strong nature of the restrictions required to ac...
Article
Full-text available
Empirical evidence indicates that environmental fluctuations have important effects on fisheries production. However, existing analytical solutions of stochastic fisheries models have been produced only under highly simplified economic and biological conditions. The main contribution of this paper is to derive under general conditions a policy func...
Article
This article considers the interaction of optimal monetary policy and agents’ beliefs. We assume that agents choose their information acquisition rate by minimising a loss function that depends on expected forecast errors and information costs. Endogenous inattention is a Nash equilibrium in the information processing rate. Although a decline of po...
Article
This paper examines the implications of forward- and backward-looking monetary policy rules in an environment with monetary-fiscal interactions. We find that the unique stationary rational expectations equilibrium (REE) is always non-Ricardian under simple implementable monetary policy rules. Copyright (c) 2008 The Ohio State University.
Article
This paper extends the adaptively rational equilibrium dynamics of Brock and Hommes [Brock, W.A., Hommes, C.H., 1997. A rational route to randomness. Econometrica 65, 1059–1160] by introducing a generalized version of the replicator dynamic. The replicator equilibrium dynamics (RED) couples the price dynamics of a Cobweb model with predictor select...
Article
Full-text available
By endowing his agents with simple forecasting models, or representations, M. Woodford ("Learning to Believe in Sunspots," Econometrica 58, 277-307, 1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodfor...
Article
Full-text available
Regime-switching rational expectations models, in which the parameters of the model evolve according to a finite state Markov process, have properties that differentiate them from linear models. Issues that are well understood in linear contexts, such as equilibrium determinacy and stability under adaptive learning, re-emerge in this new context. T...
Article
We show that if policymakers compute the optimal unconstrained interest-rate rule within a Taylor-type class, they may be led to rules that generate indeterminacy and/or instability under learning. This problem is compounded by uncertainty about structural parameters since an optimal rule that is determinate and stable under learning for one calibr...
Article
Full-text available
We consider a linear univariate rational expectations model, with a predetermined variable, and study existence and stability of solutions driven by an extraneous finite-state Markov process. We show that when the model is indeterminate there exists a new class of k-state dependent sunspot equilibria in addition to the k-state sunspot equilibria (k...
Article
This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker's preferences for price vs. output stability, the learning process can converge to a new equilibrium in which bot...
Article
Full-text available
Sargent's (1999) model of inflation is amended to include real oil prices and used to study the impact of exogenous supply shocks on the inflation time-series. We analyse whether these shocks can trigger escape-like episodes. We consider unobserved permanent shocks to the natural rate of unemployment and observed permanent shocks to the mean real o...
Article
This paper generalizes existence results on first-order Stochastic Consistent Expectations Equilibria (SCEE) obtained by Hommes et al. (Learning to Believe in Linearity in an Unknown Nonlinear Stochastic Economy, 2002). We present a stochastic non-linear self-referential model in which expectations are based on linear perceptions. In an SCEE the sa...
Article
We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of stationary sunspot equilibria (SSEs). For a strict subset of the parameter space there exist SSEs that are locally stable under least-squares learning provided agents use a common factor representation fo...
Article
We examine existence and stability under learning of sunspot equilibria in a New Keynesian model incorporating inertia. Indeterminacy remains prevalent, stable sunspots abound, and inertia in IS and aggregate supply (AS) relations do not significantly impact the policy region containing stable sunspots.
Article
We examine stability under learning of sunspot equilibria in Real Business Cycle type models with indeterminacies. Our analysis emphasizes the importance of examining alternative representations of sunspot solutions. A general bivariate reduced form contains parameter regions in which sunspots are stable under learning. However, for parameters rest...
Article
Using a short-term interest rate as the monetary policy instrument can be problematic near its zero bound constraint. An alternative strategy is to use a long-term interest rate as the policy instrument. We find when Taylor-type policy rules are used by the central bank to set the long rate in a standard New Keynesian model, indeterminacy—that is,...
Article
A simple theoreticalmodel of a tim- consist ing of Faustmann rotations evalubermarket finds that there exists a rational expecta- ated at the mean of the price process. tions equilibrium in which prices evolve according The central question addressed in this to a stationary A R (1) process.Simulations analyz e study is: what is the appropriate mode...
Article
Full-text available
This paper fills an important gap in the literature on determinacy and existence of sunspot equilibria in stochastic linear self-referential models. The results in this paper demonstrate that heterogeneity in expectations may alter a model's regions of determinacy. We show how to associate with a heterogeneous expectations model (HE-model) a ration...
Article
Many models of monetary policy predict a trade-off between inflation and output variance despite compelling evidence that the Federal Reserve has become more aggressive in fighting inflation and there has been a resulting decline in both inflation and output variance. We address this apparent puzzle by studying the interaction of optimal monetary p...
Article
Using a short-term interest rate as the monetary policy instrument can be problematic near its zero bound constraint. An alternative strategy is to use a long-term interest rate as the policy instrument. We find when Taylor-type policy rules are used to set the long rate in a standard New Keynesian model, indeterminacy - that is, multiple rational...
Article
Forward-looking monetary models with Taylor-type interest rate rules are known to generate indeterminacies, with a potential dependence on extraneous ‘sunspots,’ for some structural and policy parameters. We investigate the stability of these solutions under adaptive learning, focusing on ‘common factor’ or ‘resonance frequency’ representations in...
Article
In their landmark paper, Bray and Savin note that the constant-parameters model used by their agents to form expectations is misspecified and that, using standard econometric techniques, agents may be able to determine the time-varying nature of the model s parameters. Here, we consider the same type of model as employed by Bray and Savin except th...
Article
We extend common factor analysis to a multi-dimensional setting by considering a bivariate reduced form consistent with many Real Business Cycle type models. We show how to obtain new representations of sunspots and find that there are parameter regions in which these sunspots are stable under learning. However, once the parameters are restricted t...
Article
We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of SSEs (stationary sunspot equilibria). For a strict subset of the parameter space there exist SSEs that are locally stable under least squares learning provided agents use a common factor representation fo...
Article
Full-text available
CETTE THESE A ETE REALISEE POUR REPONDRE A LA QUESTION SUIVANTE : LES INFORMATIONS APPORTEES PAR LES MARCHES A TERME DE COMMODITES ET LES TECHNIQUES DE COUVERTURE QU'ILS PROPOSENT PEUVENTELLES SERVIR A VALORISER UN GISEMENT PETROLIER ET DECIDER DE SA DATE D'EXPLOITATION ? LES TRAVAUX ONT DONC ETE CENTRES SUR LA VALORISATION D'UN BARIL DE PETROLE PO...
Article
We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and consider solutions driven by an extraneous finite state Markov process as well as by the fundamental noise. We obtain conditions for existence of noisy k-state sunspot equilibria (noisy k-SSEs) and, for the case k=2, of noisy k-state dependent...
Article
Empirical evidence indicates that environmental ∞uctuations have important efiects on flsheries production. However, existing analytical solutions of stochastic flsheries models have been produced only under highly simplifled economic and biological con- ditions. Applying methods on dynamic stochastic general equilibrium and multivariate linear exp...

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