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Saddlepath learning

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Author Info

  • Ellison, Martin
  • Pearlman, Joseph

Abstract

Saddlepath learning occurs when agents learn adaptively using a perceived law of motion that has the same form as the saddlepath relationship in rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise minimum state variable results previously derived only under full information. When the system is determinate, we show that a learning process based on the saddlepath is always e-stable. When the system is indeterminate, we find there is a unique MSV solution that is iteratively e-stable. However, in this case there is a sunspot solution that is learnable as well. We conclude by demonstrating that our results hold for any information set.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 4 (July)
Pages: 1500-1519

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:4:p:1500-1519

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Web page: http://www.elsevier.com/locate/inca/622869

Related research

Keywords: E-stability Determinacy Learning Saddlepath stability;

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References

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  1. Bennett T. McCallum, 2006. "E-Stability vis-a-vis Determinacy Results for a Broad Class of Linear Rational Expectations Models," NBER Working Papers 12441, National Bureau of Economic Research, Inc.
  2. Klaus Adam, 2003. "Learning and Equilibrium Selection in a Monetary Overlapping Generations Model with Sticky Prices," CFS Working Paper Series 2003/03, Center for Financial Studies.
  3. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
  4. Klaus Adam & George W. Evans & Seppo Honkapohja, 2004. "Are Stationary Hyperinflation Paths Learnable?," CFS Working Paper Series 2004/15, Center for Financial Studies.
  5. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
  6. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
  7. Chryssi Giannitsarou, 2004. "Supply-side reforms and learning dynamics," Money Macro and Finance (MMF) Research Group Conference 2003 36, Money Macro and Finance Research Group.
  8. Evans, George W. & McGough, Bruce, 2005. "Monetary policy, indeterminacy and learning," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1809-1840, November.
  9. Stefano Eusepi & James Bullard, 2008. "When Does Determinacy Imply Expectational Stability?," 2008 Meeting Papers 897, Society for Economic Dynamics.
  10. Vitor Gaspar & Frank Smets & David Vestin, 2006. "Adaptive learning, persistence, and optimal monetary policy," Working Paper Series 644, European Central Bank.
  11. Bennett T. McCallum, 2002. "The Unique Minimum State Variable RE Soluiton is E-Stable in All Well Formulated Linear Models," GSIA Working Papers 2003-25, Carnegie Mellon University, Tepper School of Business.
  12. McCallum, Bennett T., 1998. "Solutions to linear rational expectations models: a compact exposition," Economics Letters, Elsevier, vol. 61(2), pages 143-147, November.
  13. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
  14. Sargent, Thomas J & Wallace, Neil, 1973. "Rational Expectations and the Dynamics of Hyperinflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 328-50, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Rational Expectations and Phillips Curves
    by Mainly Macro in Mainly Macro on 2012-03-11 10:03:00
  2. Rational Expectations and Phillips Curves
    by Mainly Macro in Mainly Macro on 2012-03-11 10:03:00
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Cited by:
  1. Holden, Tom, 2008. "Rational macroeconomic learning in linear expectational models," MPRA Paper 10872, University Library of Munich, Germany.
  2. Liam Graham, 2011. " Individual rationality, model-consistent expectations and learning," CDMA Working Paper Series 1112, Centre for Dynamic Macroeconomic Analysis.
  3. Michele Berardi & Jaqueson K. Galimberti, 2012. "On the plausibility of adaptive learning in macroeconomics: A puzzling conflict in the choice of the representative algorithm," Centre for Growth and Business Cycle Research Discussion Paper Series 177, Economics, The Univeristy of Manchester.
  4. Paul Levine & Joseph Pearlman & Bo Yang, 2012. "Imperfect Information, Optimal Monetary Policy and Informational Consistency," School of Economics Discussion Papers 1012, School of Economics, University of Surrey.
  5. Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
  6. Tom Holden, 2012. "Learning from learners," School of Economics Discussion Papers 1512, School of Economics, University of Surrey.

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