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Learning in a Misspecified Multivariate Self-referential Linear Stochastic Model

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  • Guse, E.

Abstract

This paper introduces a general method to study stability (under learning) of equilibria resulting from agents with misspecified perceptions of the law of motion of the economy. This is done by transforming the actual and perceived laws of motion into the form of seemingly unrelated regressions and then linearly projecting the actual law of motion into the same class as the perceived law of motion. I study the New Keynesian IS-LM model with inertia under all possible classes of restricted perceptions. It turns out that the results found in Bullard and Mitra (2002, 2003) are robust under misspeci.ed expectations.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0548.

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Length: 27
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cam:camdae:0548

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Related research

Keywords: Adaptive Learning; Expectational Stability; Monetary Policy Rules; Restricted Perceptions Equilibria; Seemingly Unrelated Regression;

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References

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Citations

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Cited by:
  1. Evans , George W & Honkapohja, Seppo, 2007. "Expectations, learning and monetary policy: an overview of recent research," Research Discussion Papers 32/2007, Bank of Finland.
  2. Granato, J. & Guse, E. & Sunny Wong, M.C., 2006. "Learning from the Expectations of Others," Cambridge Working Papers in Economics 0605, Faculty of Economics, University of Cambridge.
  3. Eran A. Guse, 2008. "Heterogeneous Expectations, Adaptive Learning, and Evolutionary Dynamics," Working Papers 09-01, Department of Economics, West Virginia University.

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