Search

COVID-19 has changed the behavior of consumers of all services, including public library readers, related to the unavailability of services during lockdown periods and other restrictions precluding physical presence in the library. The aim of this case study was to learn what effects the COVID-19 pandemic had on e-book readers and their behavior. This article presents the results of the analysis of data from empirical surveys undertaken in August 2019 and August 2020 in the Municipal Library in Prague (Czech Republic). Findings revealed that readers do not prefer e-books due to the pandemic situation. Paper book preferences still prevail. The results show that the pandemic slightly adjusted the preference of book genres. The pandemic did not change readers' willingness to pay for library services but rather forced public libraries to adjust their service offerings and distribution channels. [ABSTRACT FROM AUTHOR]

At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level‐k$k$ thinking, a form of bounded rationality formalized by García‐Schmidt and Woodford (2019) and Farhi and Werning (2019), consistent with experimental evidence. This process does not lead to a number of puzzling features from rational expectations models, such as the reversal puzzle, or implausible large fiscal multipliers. Optimal monetary policy at the ZLB under level‐k$k$ thinking prescribes keeping the nominal rate lower for longer, but short‐run macro‐economic stabilization is less powerful compared to rational expectations. [ABSTRACT FROM AUTHOR]

We study the effect of a "leaning against the wind" monetary policy on asset price bubbles in a learning‐to‐forecast experiment, where prices are driven by the expectations of market participants. We find that a strong interest rate response is successful in preventing or deflating large price bubbles, while a weak response is not. Giving information about the interest rate changes and communicating the goal of the policy increases coordination of expectations and has a stabilizing effect. When the steady‐state fundamental price is unknown and the interest rate rule is based on a proxy instead, the policy is less effective. [ABSTRACT FROM AUTHOR]

This survey discusses behavioral and experimental macroeconomics, emphasizing a complex systems perspective. The economy consists of boundedly rational heterogeneous agents who do not fully understand their complex environment and use simple decision heuristics. Central to our survey is the question of under which conditions a complex macro-system of interacting agents may or may not coordinate on the rational equilibrium outcome. A general finding is that under positive expectations feedback (strategic complementarity)—where optimistic (pessimistic) expectations can cause a boom (bust)—coordination failures are quite common. The economy is then rather unstable, and persistent aggregate fluctuations arise strongly amplified by coordination on trend-following behavior leading to (almost-)self-fulfilling equilibria. Heterogeneous expectations and heuristics switching models match this observed micro and macro behavior surprisingly well. We also discuss policy implications of this coordination failure on the perfectly rational aggregate outcome and how policy can help to manage the self-organization process of a complex economic system. (JEL C63, C90, D91, E12, E71, G12) [ABSTRACT FROM AUTHOR]

We introduce Behavioral Learning Equilibria (BLE) into a multivariate linear framework and apply it to New Keynesian DSGE models. In a BLE, boundedly rational agents use simple, but optimal AR(1) forecasting rules whose parameters are consistent with the observed sample mean and autocorrelation of past data. We study the BLE concept in a standard 3‐equation New Keynesian model and develop an estimation methodology for the canonical Smets and Wouters (2007) model. A horse race between Rational Expectations (REE), BLE, and constant gain learning models shows that the BLE model outperforms the REE benchmark and is competitive with constant gain learning models in terms of in‐sample and out‐of‐sample fitness. Sample‐autocorrelation learning of optimal AR(1) beliefs provides the best fit when short‐term survey data on inflation expectations are taken into account in the estimation. As a policy application, we show that optimal Taylor rules under AR(1) expectations inherit history dependence and require a lower degrees of interest rate smoothing than REE. [ABSTRACT FROM AUTHOR]

We study the role of investor experience in the formation of asset price bubbles. We conduct a call market experiment in which participants trade assets with each other and a learning-to-forecast experiment in which participants only forecast future prices (while trade based on these forecasts is computerized). Each experiment comprises three treatments varying the information that participants receive about the fundamental value. Each experimental market is repeated three times. Throughout, we observe sizable bubbles that persist despite participant experience. Our findings in the call market experiment contrast with those in the literature. Our findings in the learning-to-forecast experiment are novel. [ABSTRACT FROM AUTHOR]

This paper examines the dynamic effects of Social Influence on asset prices in the presence of heterogeneous expectations among investors. In our model, the choices of investors' trading strategies are influenced not only by past payoffs but also by their neighbors' choices in the social network. To obtain tractable results with generic implications for social structure, we use a mean-field approximation approach rather than specifying the exact structure of social network. Analytical conditions for the existence and local stability of equilibria of price dynamics are established and validated through numerical simulations. Our analysis shows that social influence increases the dimension of the dynamical system and that equilibria can only be expressed implicitly as solutions of certain equations. We also investigate the long-run behavior of price and fraction of trading strategies using numerical simulation under a scale-free network and a power function type social influence factor. Our results suggest that the system tends to be stable when social influence is small but exhibit complex periodic orbits and even chaos when social influence is large. These findings yield valuable insights into the role of social influence in financial markets. [ABSTRACT FROM AUTHOR]

The article offers brief profiles of economics professors John Hart, Cars Hommes, Dorian Jullien, who contributed to the writing of the journal.

Expectations are among the main driving forces for economic dynamics. Therefore, managing expectations has become a primary objective for monetary policy seeking to stabilize the business cycle. In this paper, we study whether central banks can manage private-sector expectations by means of publishing one-period ahead inflation projections in a New Keynesian learning-to-forecast experiment. Subjects in the experiment observe these projections along with the historic development of the economy and subsequently submit their own one-period ahead inflation forecasts. In this context, we find that the central bank can significantly manage private-sector expectations and that this management strongly supports monetary policy in stabilizing the economy. Moreover, published central bank inflation projections drastically reduce the probability of a deflationary spiral after strong negative shocks to the economy. [ABSTRACT FROM AUTHOR]

Summary: How forward guidance influences expectations is not fully understood. To study this, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I describe how, when, and where forward guidance has worked. I estimate that forecasters revised their interest rate forecasts in the intended direction by five basis points on average following a forward guidance change. I provide estimates for The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, Sveriges Riksbank, and Norges Bank. [ABSTRACT FROM AUTHOR]

Contributors to cobweb theory include many leading economists of the twentieth century. From early beginnings in 1930, cobweb theory played a key role in evolving perceptions of market stability arising from recursive linear models with endogenous dynamics. The focal point of this evolution in cobweb theory is the transition from naive to adaptive to rational price expectations. After a review of the prehistory, this paper examines the first wave of linear cobweb theory initiated by Jan Tinbergen, Henry Schultz, and Umberto Ricci and proceeds to consider the evolution of price expectations in the second wave of cobweb models associated with endogenous cycles in commodity markets. The role of modern cobweb theory in discussions about the stability of market equilibrium and the connection to processes with rational expectations is assessed. [ABSTRACT FROM AUTHOR]

We investigate the relationship between traders' expectations and market outcomes with experimental asset market data. The data show that those who have high price expectations buy more frequently and submit higher bids, and those who hold low price expectations sell more frequently and submit lower bids. Traders who have more accurate expectations achieve greater earnings. Simulations using only belief data reproduce the pricing patterns observed in the market well, indicating that the heterogeneity of expectations is a key to explaining market activity. [ABSTRACT FROM AUTHOR]

It is widely believed that inflation inertia varies with the policy pursued. In a novel experiment, price setters determine inflation rates and react to a central bank's indicator, which is implemented exogenously either as cold turkey or gradual disinflation. In a third treatment, subjects in the role of a central banker set the indicator endogenously, potentially reducing inertia by signaling to be a tough central banker. I find inertia to be structurally stable and invariant to policies. The data can be organized by a model of level‐k$k$ thinking, which shows that cold turkey improves only a few subjects' adjustment while leaving many behind. [ABSTRACT FROM AUTHOR]