Conference on Heterogeneous Expectations and Economic Stability

Sponsored by Columbia University’s Program for Economic Research, in conjunction with Columbia’s Economics Department and Columbia Business School.

Faculty House, Columbia University

Friday, February 11, 2011

On February 11, 2011, Columbia University’s Program for Economic Research, in conjunction with Columbia’s Economics Department and Columbia Business School, sponsored a conference organized by Professors Michael Woodford and Ricardo Reis, focusing on the issue of heterogeneous expectations and economic stability. The purpose of the conference was to consider departures for rational expectations models and evaluate alternative models of how agents form expectations over variables which determine their actions.

As discussed in Michael Woodford’s introduction to the conference, agents in rational expectations models do not make mistakes, and all act in a homogenous manner – that is, they do not react differently to the same set of information. Woodford pointed out that modeling events like the current crisis and large changes in assets prices associated with the boom and bust in the housing market is very difficult in a rational expectations framework. Woodford then asserted that models that can match the magnitude and persistence of movements in asset prices are critical, in order for the field of economics to more appropriately describe the boom and bust dynamics that have taken place recently in the world economy.

Participants in the conference brought together several alternative approaches to evaluate the potential benefits and drawbacks to each approach. In organizing this conference, Woodford and Reis sought to bring together proponents of a variety of approaches, who may not frequently engage one another, in the hope of reaching conclusions about which directions are most promising at this time.

 

Full Schedule

8:30

Arrival and breakfast

9:00

Klaus Adam (Mannheim) and Albert Marcet (LSE)
House Prices and the Current Account
Discussant: Aaron Tornell (UCLA)

10:00

Break

10:20

Craig Burnside (Duke), Martin Eichenbaum (Northwestern), and SergioRebelo (Northwestern)
Booms and Busts: Understanding Housing Market Dynamics
Discussant: Peter Howitt (Brown)

11:20

Break

11:40

Mordecai Kurz (Stanford)
Diverse Beliefs in New Keynesian Economics
Discussant: Guido Lorenzoni (MIT)

12:40

Lunch

13:40

David Laibson (Harvard)
Natural Expectations and Macroeconomic Dynamics
Discussant: Markus Brunnermeier (Princeton)

14:40

Blake LeBaron (Brandeis)
Heterogeneous Gain Learning and the Dynamics of Asset Prices
Discussant: Kent Daniel (Columbia)

15:40

Break

16:00

Monika Piazzesi (Stanford) and Martin Schneider (Stanford)
Trend and Cycle in Bond Premia
Discussant: Xavier Gabaix (NYU)

17:00

Roger Guesnerie (College de France), Roman Frydman (NYU), AlbertMarcet (LSE)
Panel Discussion:  How Should We Model Expectations?  

18:00

Dinner

20:00

Adjourn