A probabilistic interpretation of the constant gain algorithm

Berardi, Michele (2019): A probabilistic interpretation of the constant gain algorithm.

Abstract

This paper proposes a novel interpretation of the constant gain learning algorithm through a probabilistic setting with Bayesian updating. Such framework allows to understand the gain coefficient in terms of the probability of changes in the estimated quantity.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian learning, adaptive learning, constant gain.
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; D - Microeconomics > D9 - Intertemporal Choice > D90 - General

References

Berardi, M., Galimberti, J.K., 2013. A note on exact correspondences between adaptive learning algorithms and the kalman filter. Economics Letters 118, 139--142.

Berardi, M., Galimberti, J.K., 2017. Empirical calibration of adaptive learning. Journal of Economic Behavior and Organization 144, 219-237.

Evans, G.W., Honkapohja, S., 2001. Learning and Expectations in Macroeconomics. Princeton University Press.

Eusepi, S., Preston, B., 2011. Expectations, learning, and business cycle fluctuations. American Economic Review 101, 2844--2872.

Milani, F., 2011. Expectation shocks and learning as drivers of the business cycle. The Economic Journal 121, 379--401.

Muth, J.F., 1960. Optimal Properties of Exponentially Weighted Forecasts. Journal of the American Statistical Association 55, 299-306.

Sargent, T.J., 1999. The Conquest of American Inflation. Princeton, NJ: Princeton University Press.

Sargent, T.J., Williams, N., Zha, T., 2006. Shocks and government beliefs: the rise and fall of American inflation. American Economic Review 96, 1193-1224.