Robustness of Adaptive Expectations as an Equilibrium Selection Device
Dynamic models in which agents' behaviour depends on expectations of future prices or other endogenous variables can have steady states that are stationary equilibria for a wide variety of expectations rules, including rational expectations. When there are multiple steady states, stability is a criterion for selecting predictions of long-run outcomes among them. The purpose of this Paper is to study how sensitive stability is to certain details of the expectations rules, in a simple OLG model with constant government debt that is financed through seigniorage. We compare simple recursive learning rules, learning rules with vanishing gain, and OLS learning, and also relate these to expectational stability. One finding is that two adaptive expectation rules that differ only in whether they use current information can have opposite stability properties.
|Date of creation:||Jul 2001|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
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.:
- Evans, George W., 1989. "The fragility of sunspots and bubbles," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 297-317, March.
- Evans, George, 1985. "Expectational Stability and the Multiple Equilibria Problem in Linear Rational Expectations Models," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1217-33, November.
- Evans, Jean Lynne & Yarrow, George Keith, 1981. "Some Implications of Alternative Expectations Hypotheses in the Monetary Analysis of Hyperinflations," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 61-80, March.
- James Bullard, 1991.
1991-004, Federal Reserve Bank of St. Louis.
- George W. Evans & Seppo Honkapohja, 2000. "Convergence for difference equations with vanishing time-dependence, with applications to adaptive learning," Economic Theory, Springer, vol. 15(3), pages 717-725.
- Duffy John, 1994. "On Learning and the Nonuniqueness of Equilibrium in an Overlapping Generations Model with Fiat Money," Journal of Economic Theory, Elsevier, vol. 64(2), pages 541-553, December.
- Marimon, Ramon & Sunder, Shyam, 1993.
"Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence,"
Econometric Society, vol. 61(5), pages 1073-107, September.
- Ramon Marimon & Shyam Sunder, 1993. "Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence," Economics Working Papers 25, Department of Economics and Business, Universitat Pompeu Fabra.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2882. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.