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Report
An experimental study of learning and limited information in games
We report on experiments that tested the predictions of competing theories of learning in games. Experimental subjects played a version of the three-person matching-pennies game. The unique mixed-strategy Nash equilibrium of this game is locally unstable under naive Bayesian learning. Sophisticated Bayesian learning predicts that expectations will converge to Nash equilibrium if players observe the entire history of play. Neither theory requires payoffs to be common knowledge. We develop maximum-likelihood tests for the independence conditions implied by the mixed-strategy Nash equilibrium. ...
Journal Article
Revisionist history: how data revisions distort economic policy research
This article describes how and why official U.S. estimates of the growth in real economic output and inflation are revised over time, demonstrates how big those revisions tend to be, and evaluates whether the revisions matter for researchers trying to understand the economy?s performance and the contemporaneous reactions of policymakers. The conclusion may seem obvious, but it is a point ignored by most researchers: To have a good chance of understanding how policymakers make their decisions, researchers must use not the final data available, but the data available initially, when the policy ...
Report
Vector autoregressions and reality
The statistical significance of variance decompositions and impulse response functions for unrestricted vector autoregressions is questionable. Most previous studies are suspect because they have not provided confidence intervals for variance decompositions and impulse response functions. Here two methods of computing such intervals are developed, one using a normal approximation, the other using bootstrapped resampling. An example from Sims? work illustrates the importance of computing these confidence intervals. In the example, the 95 percent confidence intervals for variance decompositions ...
Journal Article
A fine time for monetary policy?
Recent research in evaluating the effects of monetary policy is potentially tainted by the problem of time aggregation: that is, effects may be incorrectly estimated using quarterly data if the effects of policy occur rapidly. This study evaluates whether time aggregation is a serious problem in a simple vector autoregression. It shows time aggregation has little impact on evaluating the effect of monetary policy in a simple vector autoregression including total reserves, nonborrowed reserves, and the federal funds rate. This finding suggests that time aggregation is unlikely to be important ...
Discussion Paper
Recursive estimation and modelling of nonstationary and nonlinear time series
This paper presents a unified approach to nonlinear and nonstationary time-series analysis for a fairly wide class of linear time variable parameter (TVP) or nonlinear systems. The method theory exploits recursive filtering and fixed interval smoothing algorithms to derive TVP linear model approximations to the nonlinear or nonstationary stochastic system, on the basis of data obtained from the system during planned experiments or passive monitoring exercises. This TVP model includes the State Dependent type of Model (SDM) as a special case, and two particular SDM forms, due to Priestly and ...
Report
Statistical inference in the multinomial multiperiod probit model
Statistical inference in multinomial multiperiod probit models has been hindered in the past by the high dimensional numerical integrations necessary to form the likelihood functions, posterior distributions, or moment conditions in these models. We describe three alternative approaches to inference that circumvent the integration problem: Bayesian inference using Gibbs sampling and data augmentation to compute posterior moments, simulated maximum likelihood (SML) estimation using the GHK recursive probability simulator, and method of simulated moment (MSM) estimation using the GHK simulator. ...
Journal Article
Bad news from a forecasting model of the U.S. economy
This paper describes and analyzes the 1990-92 economic forecasts of a Bayesian vector autoregression model developed by researchers at the Minneapolis Fed. The model's 1990 forecast was pretty bad - too optimistic about both inflation and economic growth, especially growth in consumption and housing. An analysis of the model's errors, however, turns up no reason to think the model is unsound. Based on data available on November 30, 1990, the model predicts weak economic conditions for the next two years: a likely recession in 1991 and moderate inflation and weak overall growth in 1991-92. The ...
Journal Article
Why no crunch from the crash?