This paper analyzes the relationship between the expectational stability of rational expectations equilibria and the possible convergence of adaptive learning processes. Results obtained using recursive least squares lead to the conjecture that a correspondence between these both selection criteria exists. This paper demonstrates on the basis of a simple linear model and an alternative learning procedure that such a conjecture would be incorrect: there exist learning procedures that may converge to rational expectations equilibria which are not expectationally stable.
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Find related papers by JEL classification: C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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Woodford, Michael, 1990.
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Econometrica,
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Evans, George W & Honkapohja, Seppo, 1992.
"On the Robustness of Bubbles in Linear RE Models,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 1-14, February.
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