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Learning in a Misspecified Multivariate Self-referential Linear Stochastic Model

  • Guse, E.

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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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0548.pdf
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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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Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  7. Honkapohja, S. & Mitra, K., 2001. "Are Non-Fundamental Equilibria Learnable in Models of Monetary Policy?," University of Helsinki, Department of Economics 501, Department of Economics.
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