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Long-run expectations in a Learning-to-Forecast Experiment

Colasante, Annarita and Alfarano, Simone and Camacho-Cuena, Eva and Gallegati, Mauro (2016): Long-run expectations in a Learning-to-Forecast Experiment.

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Abstract

We conduct a Learning to Forecast Experiment (LtFE) using a novel setting in which we elicit subjects' short and long-run expectations on the future price of an asset. We find that: (i) the rational expectations equilibrium (REE) is not a meaningful description for subjects' expectations, (ii) which are, instead, better described by an adaptive learning scheme. (iii) Subjects exhibit a higher degree of inertia when revising long-run expectations vis-a-vis short-run expectations.

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