Invites you to a Macroeconomics and Trade seminar presented by

Michael Shin

(University of Sydney Business School) 

Heterogeneous Experience and Constant-gain Learning

Co-author:

John Duffy (University of California)

Wednesday 14 September

2.00pm – 3.30pm

Via Zoom: Meeting Link

Abstract: Recent evidence suggests that learning agents may limit the history of data they use to form forecasts of inflation and other macroeconomic variables to lived experience (Malmendier and Nagel 2012, 2016). We connect this finding to the use of constant gain learning found in the literature on learning in macroeconomics. Specifically, we incorporate both heterogeneity in life-cycle horizons via the Blanchard-Yaari perpetual youth model and learning from experience (LfE) into a simple linear expectations model where agents die with some random probability every period. For learning from lived experience, agents implement a decreasing-gain learning approach using only observations within their own lifetime. We find that while at the individual level, agents are using decreasing-gain learning (DGL), at the aggregate level, expectations follow an approach that is related to constant-gain learning where instead the gain parameter is no longer free but tied to the probability of death. We provide a precise characterization of the relationship between constant-gain learning (CGL) and our model of perpetual youth learning (PYL).

For further information contact: Macroeconomics and Trade seminar series coordinator Dr James Graham (james.a.graham@sydney.edu.au)

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