Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305534 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11292
Publisher: 
CESifo GmbH, Munich
Abstract: 
In the long run, we are all dead. Nonetheless, when studying the short-run dynamics of economic models, it is crucial to consider boundary conditions that govern long-run, forward-looking behavior, such as transversality conditions. We demonstrate that machine learning (ML) can automatically satisfy these conditions due to its inherent inductive bias toward finding flat solutions to functional equations. This characteristic enables ML algorithms to solve for transition dynamics, ensuring that long-run boundary conditions are approximately met. ML can even select the correct equilibria in cases of steady-state multiplicity. Additionally, the inductive bias provides a foundation for modeling forward-looking behavioural agents with self-consistent expectations.
Subjects: 
machine learning
inductive bias
rational expectations
transitional dynamics
transversality
behavioural macroeconomics
JEL: 
C10
E10
Document Type: 
Working Paper
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