Essay on beliefs and the macroeconomy

This thesis consists of three essays. The first essay explores a form of bounded rationality where agents learn about the economy with possibly misspecified models. I consider a recursive general-equilibrium framework that nests a large class of macroeconomic models. Misspecification is represented as a constraint on the set of beliefs agents can entertain. I introduce the solution concept of constrained-rational-expectations equilibrium (CREE), in which each agent selects the belief from her constrained set that is closest to the endogenous distribution of observables in the Kullback-Leibler divergence. If the set of permissible beliefs contains the rational-expectations equilibria (REE), then the REE are CREE; otherwise, they are not. I show that a CREE exists, that it arises naturally as the limit of adaptive and Bayesian learning, and that it incorporates a version of the Lucas critique.

Name thesis:degree_name

Doctoral

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Economics

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2019

Author dc:creator

• Molavi, Pooya.

Advisor dc:contributor.advisor

• Ivan Werning, Daron Acemoglu and Drew Fudenberg.

• Economics.

Statement dc:rights

• MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/122111

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/122111