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Licensed Unlicensed Requires Authentication Published by De Gruyter December 4, 2006

Nonlinear Expectation Formation, Endogenous Business Cycles and Stylized Facts

  • Frank H. Westerhoff

We modify Samuelson’s multiplier-accelerator model to explore the influence of expectations on fluctuations in economic activity. Within our model, the agents use a nonlinear mix of extrapolative and regressive forecast rules to predict the output. Our model is able to mimic some generic features of business cycles. In particular, consumption is procyclical and fluctuates less than output while investment is procyclical and fluctuates more than output.

Published Online: 2006-12-4

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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