Topics in Dynamic Macroeconomics

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This research should make valuable methodological and substantive contributions to our understanding of dynamics of economic growth, consumption, saving and other important economic variables. The project pursues research on learning in economic systems; recursive dynamic models of economic fluctuations; and monetary history. The two lines of research on learning are artificial intelligent learning via classifier systems and learning via recursive ARMA models. Two classes of recursive dynamic models are considered, one with "signalling " within incomplete markets and another with complete markets. Two areas of monetary history are examined: the macroeconomics of the periods preceding, during, and following the French revolution and government switches from one commodity money standard to another. Models in game theory and macroeconomics often have multiple equilibria, and there is no self-evident way for either agents inside the model or economists to select among them. In monetary economics, there are a variety models that display such multiplicities. The research by this project on learning algorithms is very important because it provides means of reducing the number of possible outcomes in some cases to a single rational equilibrium. The predictions of that model can then be tested empirically. Dynamic stochastic models are used in macroeconomics and finance to build theories about how variables like consumption and interest rates covary over time. But these models are often computationally demanding to analyze or completely intractable. The research on recursive dynamic models explores ways that these models can be quickly and inexpensively formulated and solved. Economic history provides a laboratory within which recent developments in macroeconomic theory can be tested. The investigator has turned up a number of documents that show the seriousness with which leaders of France around the time of the French Revolution were experimenting with a range of arrangements extending from "real bills" schemes to "optimal tax smoothing" policies. This project will use dynamic macroeconomic and monetary theories to study these and other historical episodes.