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Durham University

Research & business

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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.

Author(s) from Durham

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.