Robustifying Learnability

In recent years, the learnability of rational expectations equilibria (REE) and determinacy of economic structures have rightfully joined the usual performance criteria among the sought after goals of policy design. And while some contributions to the literature (for example Bullard and Mitra (2001) and Evans and Honkapohja (2002)) have made significant headway in establishing certain features of monetary policy rules that facilitate learning, a comprehensive treatment of policy design for learnability has yet to surface, especially for cases in which agents have potentially misspecified their learning models. This paper provides such a treatment. We argue that since even among professional economists a generally acceptable workhorse model of the economy has not been agreed upon, it is unreasonable to expect private agents to have collective rational expectations. We assume instead that agents have an approximate understanding of the workings of the economy and that their task of learning true reduced forms of the economy is subject to potentially destabilizing errors. We then ask: can a central bank set policy that accounts for learning errors but also succeeds in bounding them in a way that allows eventual learnability of the model, given policy. For different parameterizations of a given policy rule applied to a New Keynesian model, we use structured singular value analysis (from robust control) to find the largest ranges of misspecifications that can be tolerated in a learning model without compromising convergence to an REE. A parallel set of experiments seeks to determine the optimal stance (strong inflation as opposed to strong output stabilization) that allows for the greatest scope of errors in learning without leading to expectational instabilty in cases when the central bank designs both optimal and robust policy rules with commitment. We compare the features of all the rules contemplated in the paper with those that maximize economic performance in the true model, and we measure the performance cost of maximizing learnability under the various conditions mentioned here.monetary policy, learning, E-stability, model uncertainty, robustness

Robustifying learnability

In recent years, the learnability of rational expectations equilibria (REE) and determinacy of economic structures have rightfully joined the usual performance criteria among the sought-after goals of policy design. Some contributions to the literature, including Bullard and Mitra (2001) and Evans and Honkapohja (2002), have made significant headway in establishing certain features of monetary policy rules that facilitate learning. However a treatment of policy design for learnability in worlds where agents have potentially misspecified their learning models has yet to surface. This paper provides such a treatment. We begin with the notion that because the profession has yet to settle on a consensus model of the economy, it is unreasonable to expect private agents to have collective rational expectations. We assume that agents have only an approximate understanding of the workings of the economy and that their learning the reduced forms of the economy is subject to potentially destabilizing perturbations. The issue is then whether a central bank can design policy to account for perturbations and still assure the learnability of the model. Our test case is the standard New Keynesian business cycle model. For different parameterizations of a given policy rule, we use structured singular value analysis (from robust control theory) to find the largest ranges of misspecifications that can be tolerated in a learning model without compromising convergence to an REE.Robust control ; Monetary policy

Robustifying learnability

In recent years, the learnability of rational expectations equilibria (REE) and determinacy of economic structures have rightfully joined the usual performance criteria among the sought-after goals of policy design. Some contributions to the literature, including Bullard and Mitra (2001) and Evans and Honkapohja (2002), have made significant headway in establishing certain features of monetary policy rules that facilitate learning. However a treatment of policy design for learnability in worlds where agents have potentially misspecified their learning models has yet to surface. This paper provides such a treatment. We begin with the notion that because the profession has yet to settle on a consensus model of the economy, it is unreasonable to expect private agents to have collective rational expectations. We assume that agents have only an approximate understanding of the workings of the economy and that their learning the reduced forms of the economy is subject to potentially destabilizing perturbations. The issue is then whether a central bank can design policy to account for perturbations and still assure the learnability of the model. Our test case is the standard New Keynesian business cycle model. For different parameterizations of a given policy rule, we use structured singular value analysis (from robust control theory) to find the largest ranges of misspecifications that can be tolerated in a learning model without compromising convergence to an REE. In addition, we study the cost, in terms of performance in the steady state of a central bank that acts to robustify learnability on the transition path to REE. (Note: This paper contains full-color graphics) JEL Classification: C6, E5E-stability, learnability, Learning, monetary policy, robust control

Optimal price adjustment: tests of a price equation in U.S. manufacturing

The following description and analysis of a firm in atomistic competition is motivated by the need to specify a dynamic equation of price behavior to be tested on U.S. manufacturing time-series data. It is shown that uncertainty of price information in a market composed of many competing firms leads to a model which is in the Evans tradition of dynamic monopoly theory. The key dynamic element is the firm's reaction to customer behavior in an uncertain price situation. Price uncertainty forces newcomers to the market to search for an acceptable price which is less than the marginal utility of the good. Old customers may decide to engage in search after a price increase, if the expected difference in search costs and price is less than the recently experienced price change. The implications of the theory are examined using phase diagram analysis and estimation. Of particular interest for empirical study are the effects of changes in model parameters on the time path of the optimal price. In line with the conclusions of the theoretical model, the estimates suggest that price adjusts to a moving equilibrium path in a variable manner determined by cyclical factors in the economy

A predictive multi-agent approach to model systems with linear rational expectations

Expectation formation plays a principal role in economic systems. We examine and revise the standard rational expectations (RE) model, generally taken as the best paradigm for expectations modelling, and suggest a new method to model rational expectations. Conventional conditions that assert the stability and uniqueness of popular solution methods are shown to be insufficient. The agent-based new modelling approach suggested in this paper will be shown to lead to uniquely stable solutions

A predictive multi-agent approach to model systems with linear rational expectations

Expectation formation plays a principal role in economic systems. We examine and revise the standard rational expectations (RE) model, generally taken as the best paradigm for expectations modelling, and suggest a new method to model rational expectations. Conventional conditions that assert the stability and uniqueness of popular solution methods are shown to be insufficient. The agent-based new modelling approach suggested in this paper will be shown to lead to uniquely stable solutions

Circulating Autoantibodies Recognizing Immunodominant Epitopes From Human Apolipoprotein B Associate With Cardiometabolic Risk Factors, but Not With Atherosclerotic Disease

Rationale: Atherosclerosis is a chronic inflammatory disease of large arteries that involves an autoimmune response with autoreactive T cells and auto-antibodies recognizing Apolipoprotein B (ApoB), the core protein of low-density lipoprotein (LDL). Here, we aimed to establish a clinical association between circulating human ApoB auto-antibodies with atherosclerosis and its clinical risk factors using a novel assay to detect auto-antibodies against a pool of highly immunogenic ApoB-peptides. Methods and Results: To detect polyclonal IgM- and IgG-antibodies recognizing ApoB, we developed a chemiluminescent sandwich ELISA with 30 ApoB peptides selected by an in silico assay for a high binding affinity to MHC-II, which cover more than 80% of known MHC-II variants in a Caucasian population. This pre-selection of immunogenic self-peptides accounted for the high variability of human MHC-II, which is fundamental to allow T cell dependent generation of IgG antibodies. We quantified levels of ApoB-autoantibodies in a clinical cohort of 307 patients that underwent coronary angiography. Plasma anti-ApoB IgG and IgM concentrations showed no differences across healthy individuals (n = 67), patients with coronary artery disease (n = 179), and patients with an acute coronary syndrome (n = 61). However, plasma levels of anti-ApoB IgG, which are considered pro-inflammatory, were significantly increased in patients with obesity (p = 0.044) and arterial hypertension (p < 0.0001). In addition, patients diagnosed with the metabolic syndrome showed significantly elevated Anti-ApoB IgG (p = 0.002). Even when normalized for total plasma IgG, anti-ApoB IgG remained highly upregulated in hypertensive patients (p < 0.0001). We observed no association with triglycerides, total cholesterol, VLDL, or LDL plasma levels. However, total and normalized anti-ApoB IgG levels negatively correlated with HDL. In contrast, total and normalized anti-ApoB IgM, that have been suggested as anti-inflammatory, were significantly lower in diabetic patients (p = 0.012) and in patients with the metabolic syndrome (p = 0.005). Conclusion: Using a novel ELISA method to detect auto-antibodies against ApoB in humans, we show that anti-ApoB IgG associate with cardiovascular risk factors but not with the clinical appearance of atherosclerosis, suggesting that humoral immune responses against ApoB are shaped by cardiovascular risk factors but not disease status itself. This novel tool will be helpful to develop immune-based risk stratification for clinical atherosclerosis in the future.Fil: Marchini, Timoteo Oscar. Consejo Nacional de Investigaciones Científicas y Técnicas. Oficina de Coordinación Administrativa Houssay. Instituto de Bioquímica y Medicina Molecular. Universidad de Buenos Aires. Facultad Medicina. Instituto de Bioquímica y Medicina Molecular; Argentina. Albert Ludwigs University of Freiburg; AlemaniaFil: Malchow, Sara. Albert Ludwigs University of Freiburg; AlemaniaFil: Caceres, Lourdes. Consejo Nacional de Investigaciones Científicas y Técnicas. Oficina de Coordinación Administrativa Houssay. Instituto de Bioquímica y Medicina Molecular. Universidad de Buenos Aires. Facultad Medicina. Instituto de Bioquímica y Medicina Molecular; Argentina. Albert Ludwigs University of Freiburg; AlemaniaFil: El Rabih, Abed Al Hadi. Albert Ludwigs University of Freiburg; AlemaniaFil: Hansen, Sophie. Albert Ludwigs University of Freiburg; AlemaniaFil: Mwinyella, Timothy. Albert Ludwigs University of Freiburg; AlemaniaFil: Spiga, Lisa. Albert Ludwigs University of Freiburg; AlemaniaFil: Piepenburg, Sven. Albert Ludwigs University of Freiburg; AlemaniaFil: Horstmann, Hauke. Albert Ludwigs University of Freiburg; AlemaniaFil: Olawale, Tijani. Albert Ludwigs University of Freiburg; AlemaniaFil: Li, Xiaowei. Albert Ludwigs University of Freiburg; AlemaniaFil: Mitre, Lucia Sol. Albert Ludwigs University of Freiburg; AlemaniaFil: Gissler, Mark Colin. Albert Ludwigs University of Freiburg; AlemaniaFil: Bugger, Heiko. University of Graz; AustriaFil: Zirlik, Andreas. University of Graz; AustriaFil: Heidt, Timo. Albert Ludwigs University of Freiburg; AlemaniaFil: Hilgendorf, Ingo. Albert Ludwigs University of Freiburg; AlemaniaFil: Stachon, Peter. Albert Ludwigs University of Freiburg; AlemaniaFil: von zur Muehlen, Constantin. Albert Ludwigs University of Freiburg; AlemaniaFil: Bode, Christoph. Albert Ludwigs University of Freiburg; AlemaniaFil: Wolf, Dennis. Albert Ludwigs University of Freiburg; Alemani

Prices and Taxes in a Ramsey Climate Policy Model under Heterogeneous Beliefs and Ambiguity

In a Ramsey policy regime, heterogeneity in beliefs about the potential costs of climate change is shown to produce policy ambiguities that alter carbon prices and taxation. Three sources of ambiguity are considered: (i) the private sector is skeptical, with beliefs that are unknown to the government, (ii) private agents have pessimistic doubts about the model, or (iii) the policy authority itself does not trust the extant scientific climate model and fears the worst. These three sources of ambiguity give rise to four potential belief regimes characterized by differentials between the government’s and the private sector’s inter-temporal rates of substitutions, with implications for the prices of carbon and capital, framed in terms of distorted Arrow–Debreu pricing theory that establishes an equivalence between the optimal carbon tax and the permit price of an underlying asset—the government-imposed limit on emissions in economies with cap and trade. This paper shows that in most instances, skeptical beliefs and resulting ambiguities justify higher carbon taxes and lower capital taxes to offset the private sector’s increased myopia compared with rational expectations. Conversely, ambiguities created by worst-case fears in either the private sector or in government tend produce forces in the opposite direction