We consider a class of nonlinear dynamic economic models in which the actual realizations of a certain variable (e.g., price) depend on the agents' expectations about this variable. We define a consistent expectations equilibrium (CEE) by the property that the sample average and the sample autocorrelations of the realizations of the actual law of motion equal the average and the autocorrelations of the perceived law of motion. Along a CEE agent's expectations are thus self-fulfilling in terms of the observable sample average and sample autocorrelations. Restricting ourselves to the case in which beliefs are described by an AR(1) process, we study existence and stability of three different types of CEE: steady-state, two-cycle, and chaotic. We illustrate how these equilibria can emerge in the nonlinear cobweb model. Learning dynamics based on sample average and sample autocorrelations are introduced and stability of CEE under this learning process is investigated.

We develop a model of optimal productivity growth under demand fluctuations. We consider two alternative hypotheses. First, we assume that productivity growth is costly in terms of current production. Second, we assume that the cost of productivity improvements is independent of current production. It is shown that, in the first case, productivity improvements will be countercyclical whereas, in the second case, they will be procyclical. The model then is used to study the impact of the frequency and amplitude of fluctuations on long-run growth. The results corresponding to the first hypothesis are shown to be consistent with recent empirical work.

We investigate the dynamics of an integrated Keynesian disequilibrium model of monetary growth that allows for a variety of labor-market and employment-adjustment processes. The structure of the model is naturally nonlinear, i.e., no extrinsic nonlinear economic behavioral relationships are imposed at first. The dynamics of the model are nine-dimensional and are investigated analytically by considering appropriate subdynamics. The model generates limit cycles (via Hopf bifurcations) and more complex dynamic behavior (when a natural kink in the money-wage Phillips curve is taken into account). It exhibits hysteresis effects with respect to long-run unemployment as well as growth and implies the occurrence of steady-state depressions in particular.

Previous work shows that financial series contain important information on the current state of the economy and expectations for the future. Further, numerous papers find links between the financial sectors and the real sectors of the economy. We add to those findings by exploring whether financial variables help to forecast the growth rate of industrial production. We evaluate linear and nonlinear forecasting methods using out-of-sample forecasting performance. We compare autoregressive models, error-correcting models, and multivariate nearest-neighbor regression models, and we explore the use of optimally combined forecasts. We find that no single forecasting technique appears to outperform any other method, and the evidence for persistent nonlinear patterns is weak. However, although nonparametric methods do not offer significant improvements in forecast accuracy by themselves, more accurate forecasts are obtained when the nonlinear forecasts are optimally combined. Our results indicate that financial information can statistically improve the forecasts of the real sector in these combined models, but the magnitude of the improvement in root-mean-squared error is small.

Staggered wage setting is introduced in a dynamic general-equilibrium monetary model, and the issue of superneutrality of money is addressed. This paper demonstrates that, in an optimizing framework, a mild permanent change in the rate of growth of money could have substantial effects on the steady-state aggregate level of output and welfare. Previous works fail to reproduce these results because they consider restrictively simple utility and production functions. The model exhibits high costs of inflation and provides a rationale for the pursuit of price stability observed in western countries. Therefore, in the presence of staggered adjustment, superneutrality of money proves to be a key issue, which should be taken into account in any economic model with staggered adjustment.

The aggregate implications of the permanent-income/life-cycle hypothesis (PILCH) are derived rigorously. Virtually all empirical rejections of PILCH based on aggregated data are shown to result from misspecifications or from characteristics of aggregate data that have been overlooked. Valid aggregate tests are proposed. Those based on a properly formulated aggregate consumption function may be superior to those based on Euler-equation methods.