Publication details

Damjanovic, T., Girdėnas, S. & Liu, K. (2015). Stationarity of econometric learning with bounded memory and a predicted state variable. Economics Letters 130: 93-96.

• Publication type: Journal Article
• ISSN/ISBN: 0165-1765
• DOI: 10.1016/j.econlet.2015.03.011
• Keywords: Econometric learning, Bounded memory, Random coefficient autoregressive process, Stationarity.
• Further publication details on publisher web site
• Durham Research Online (DRO) - may include full text

Author(s) from Durham

• Professor Tatiana Damjanovic

Abstract

In this paper, we consider a model where producers set their prices based on their prediction of the aggregated price level and an exogenous variable, which can be a demand or a cost-push shock. To form their expectations, they use OLS-type econometric learning with bounded memory. We show that the aggregated price follows the random coefficient autoregressive process and we prove that this process is covariance stationary.