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E–stability and stability of adaptive learning in models with asymmetric information

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  • Maik Heinemann

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    (Institute of Economics, Leuphana University of Lüneburg)

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    Abstract

    The paper demonstrates how the E–stability principle introduced by Evans and Honkapohja [2001] can be applied to models with heterogeneous and private information in order to assess the stability of rational expectations equilibria under learning. The paper extends already known stability results for the Grossman and Stiglitz [1980] model to a more general case with many differentially informed agents and to the case where information is endogenously acquired by optimizing agents. In both cases it turns out that the rational expectations equilibrium of the model is inherently E-stable and thus locally stable under recursive least squares learning.

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    File URL: http://www.leuphana.de/fileadmin/user_upload/Forschungseinrichtungen/ifvwl/WorkingPapers/wp_69_Upload.pdf
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    Bibliographic Info

    Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 69.

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    Length: 31 pages
    Date of creation: Dec 2007
    Date of revision:
    Handle: RePEc:lue:wpaper:69

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    Web page: http://leuphana.de/institute/ivwl.html

    Related research

    Keywords: Adaptive Learning; Eductive Stability; Rational Expectations;

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    1. Marcet, Albert & Sargent, Thomas J, 1988. "The Fate of Systems with "Adaptive" Expectations," American Economic Review, American Economic Association, vol. 78(2), pages 168-72, May.
    2. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. Routledge, Bryan R, 1999. "Adaptive Learning in Financial Markets," Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1165-1202.
    5. Roger Guesnerie, 2005. "Assessing Rational Expectations 2: "Eductive" Stability in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072580, December.
    6. Vives, Xavier, 1993. "How Fast Do Rational Agents Learn?," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 329-47, April.
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