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Learning in a misspecified multivariate self-referential linear stochastic model

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  • Guse, Eran A.

Abstract

This paper introduces a general method to study learnability of equilibria resulting from agents using misspecified forecasting models. One can represent the actual and perceived laws of motion (PLM) as seemingly unrelated regressions and then linearly project the actual law of motion into the same class as the PLM. I present an application using the New Keynesian IS-AS model with inertia under several simple Taylor policy rules. It turns out that the results presented in Bullard and Mitra [2002. Learning about monetary policy rules. Journal of Monetary Economics 49, 1105-1129; 2005. Determinacy, Learnability, and Monetary Policy Inertia. Journal of Money, Credit, and Banking, forthcoming] are robust when agents do not include all the state variables in their forecasting models.

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  • Guse, Eran A., 2008. "Learning in a misspecified multivariate self-referential linear stochastic model," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1517-1542, May.
  • Handle: RePEc:eee:dyncon:v:32:y:2008:i:5:p:1517-1542
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    Cited by:

    1. Guse, Eran A., 2010. "Heterogeneous expectations, adaptive learning, and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 42-57, May.
    2. George W. Evans & Seppo Honkapohja, 2009. "Expectations, Learning and Monetary Policy: An Overview of Recent Research," Central Banking, Analysis, and Economic Policies Book Series,in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 2, pages 027-076 Central Bank of Chile.
    3. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    4. Granato, Jim & Guse, Eran A. & Wong, M. C. Sunny, 2008. "Learning From The Expectations Of Others," Macroeconomic Dynamics, Cambridge University Press, vol. 12(03), pages 345-377, June.
    5. Christopher G. Gibbs, 2017. "Forecast combination, non-linear dynamics, and the macroeconomy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 653-686, March.

    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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