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Learning with Bounded Memory in Stochastic Models

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Author Info
Seppo Honkapohja
Kaushik Mitra

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Abstract

Learning with bounded memory in stochastic frameworks is incomplete in the sense that the learning dynamics cannot converge to an rational expectations equilibrium (REE). The properties of the dynamics arising from such rules are studied for models with steady states. If in standard linear models the REE is in a certain sense expectationally stable (E-stable), then the dynamics are asymptotically stationary and forecasts are unbiased. We also provide similar local results for a class of nonlinear models with small noise and their approximations.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 00/42.

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Handle: RePEc:yor:yorken:00/42

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Related research
Keywords: Bounded memory; expectational stability; unbiased.;

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William A. Brock & Cars H. Hommes, 1997. "A Rational Route to Randomness," Econometrica, Econometric Society, vol. 65(5), pages 1059-1096, September.
  2. George W. Evans & Seppo Honkapohja, 1993. "Adaptive forecasts, hysteresis, and endogenous fluctuations," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13. [Downloadable!]
  3. Grandmont Jean-michel & Laroque G, 1990. "Economic dynamics with learning : some instability examples," CEPREMAP Working Papers (Couverture Orange) 9007, CEPREMAP.
  4. Evans, George W & Honkapohja, Seppo, 1995. "Local Convergence of Recursive Learning to Steady States and Cycles in Stochastic Nonlinear Models," Econometrica, Econometric Society, vol. 63(1), pages 195-206, January. [Downloadable!] (restricted)
  5. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September. [Downloadable!] (restricted)
  6. Evans George W. & Honkapohja Seppo, 1994. "On the Local Stability of Sunspot Equilibria under Adaptive Learning Rules," Journal of Economic Theory, Elsevier, vol. 64(1), pages 142-161, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eva Carceles Poveda & Chryssi Giannitsarou, 2006. "Asset pricing with adaptive learning," Computing in Economics and Finance 2006 25, Society for Computational Economics. [Downloadable!]
    Other versions:
  2. Sharon Kozicki & P.A. Tinsley, 2003. "Permanent and Transitory Policy Shocks in an Empirical Macro Model with Asymmetric Information," CFS Working Paper Series 2003/41, Center for Financial Studies. [Downloadable!]
    Other versions:
  3. Evans, George W & Honkapohja, Seppo, 2008. "Expectations, Learning and Monetary Policy: An Overview of Recent Rersearch," CEPR Discussion Papers 6640, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Orlando Gomes, 2008. "Adaptive Learning and Complex Dynamics," Working Papers ercwp2108, ISCTE, UNIDE, Economics Research Centre. [Downloadable!]
  5. Kaushik Mitra, 2004. "Is more data better?," Royal Holloway, University of London: Discussion Papers in Economics 04/19, Department of Economics, Royal Holloway University of London, revised Jul 2004. [Downloadable!]
    Other versions:
  6. Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV. [Downloadable!]
    Other versions:
  7. Orlando Gomes & Vivaldo M. Mendes & Diana A. Mendes, 2007. "The Dynamics of Learning in Optimal Monetary Policy," Working Papers ercwp2008, ISCTE, UNIDE, Economics Research Centre. [Downloadable!]
  8. Verbic, Miroslav, 2006. "Memory and Asset Pricing Models with Heterogeneous Beliefs," MPRA Paper 1261, University Library of Munich, Germany. [Downloadable!]
  9. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April. [Downloadable!] (restricted)
    Other versions:
  10. Beechey, Meredith, 2004. "Excess Sensitivity and Volatility of Long Interest Rates: The Role of Limited Information in Bond Markets," Working Paper Series 173, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  11. Orlando Gomes, 2008. "Stability under Learning: the Endogenous Growth Problem," Working Papers ercwp1708, ISCTE, UNIDE, Economics Research Centre. [Downloadable!]
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