adaptive expectations

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Adaptive Expectations

A theory stating that economic actors make decisions based upon past, recent performance, regardless of the actual state of the economy. Thus, it takes economic actors some time to realize that a recession has ended or is beginning and to adjust their behavior accordingly. Adaptive expectations can result in large losses. See also: Rational expectations, Irrational exuberance.

adaptive expectations (of inflation)

the idea that EXPECTATIONS of the future rate of INFLATION are based on the inflationary experience of the recent past. As a result, once under way, inflation feeds upon itself with, for example, trade unions demanding an increase in wages in the current pay round, which takes into account the expected future rate of inflation which, in turn, leads to further price rises. See EXPECTATIONS-ADJUSTED/AUGMENTED PHILLIPS CURVE, INFLATIONARY SPIRAL, RATIONAL EXPECTATIONS HYPOTHESIS, ANTICIPATED INFLATION, TRANSMISSION MECHANISM.
References in periodicals archive ?
These include developing a network-based model of technological diffusion, and introducing financial market constraints and adaptive expectations of agents.
The empirical analysis based on OLS, GLS and GMM reveal that international oil prices, money supply, bilateral exchange rate of Pak-rupee with US-dollar, tax revenue collection as ratio of manufacturing sector value added, energy import-gap ratio and adaptive expectations are critical determinants, which positively contribute to the energy inflation.
Adaptive expectations models fell out of favour during the rational expectations revolution of the 1970s and 1980s, as they appeared to imply that investors would make systematic forecasting errors.
Further, hypothesis tests on statistical models implied by conventional adaptive expectations do not suggest the prevalence of such behavior in the data.
c) inflation induced by adaptive expectations (builtin inflation).
On the other hand, more sophisticated treatments of the adaptive expectations hypothesis, mostly appearing in the recent literature on learning in macroeconomic models, have found less tendency toward instability at low inflation rates.
226) asserts that "the sole evidence regarding Phillips's contribution to the theory of adaptive expectations rests on Leeson's report that Friedman communicated to him (orally or in writing, we are not told) that he got the idea from a conversation with Phillips which took place over four decades ago.
Because of the criticism of adaptive expectations, the assumption of rational expectations, which had first been proposed in the early 1960s, gained favor among many macroeconomists.
Originally, the adaptive expectations hypothesis is used to generate values for unobservable permanent and transitory income by estimating income weights from a geometrically declining distributed lag function of past levels of the observed income (see Friedman).
Differences across agents in terms of information can lead to a separation between those who form more rational and those who form more adaptive expectations.
2) According to this scenario, the paper is divided into four sections: Section II estimates the model using adaptive expectations.
e] is assumed to follow and adaptive expectations mechanism and is estimated using the Nugent-Glezakos (1979) method.

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