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Slow Learning

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Abstract

This paper provides an analytic characterization of the speed of convergence under learning to a rational expectations equilibrium (REE) for a large class of multivariate models. We show that learning is slower when people's beliefs about model outcomes are more self-fulfilling. The paper also investigates which features of a model economy make beliefs more self-fulfilling, using variants of the simple new-Keynesian model and a medium-scale DSGE model. For empirically plausible specifications of these models, convergence of a learning equilibrium to the REE is so slow that analysis based on rational expectations can be misleading.

Suggested Citation

  • Lawrence J. Christiano & Martin S. Eichenbaum & Benjamin K. Johannsen, 2026. "Slow Learning," Finance and Economics Discussion Series 2026-039, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103399
    DOI: 10.17016/FEDS.2026.039
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    Other versions of this item:

    • Lawrence Christiano & Martin S. Eichenbaum & Benjamin K. Johannsen, 2024. "Slow Learning," NBER Working Papers 32358, National Bureau of Economic Research, Inc.

    References listed on IDEAS

    as
    1. Christopeit, Norbert & Massmann, Michael, 2018. "Estimating Structural Parameters In Regression Models With Adaptive Learning," Econometric Theory, Cambridge University Press, vol. 34(1), pages 68-111, February.
    2. George William Evans, 2001. "Expectations in Macroeconomics Adaptive versus Eductive Learning," Revue économique, Presses de Sciences-Po, vol. 52(3), pages 573-582.
    3. Caines, Colin & Winkler, Fabian, 2021. "Asset price beliefs and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 123(C), pages 53-67.
    4. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    5. Boneva, Lena Mareen & Braun, R. Anton & Waki, Yuichiro, 2016. "Some unpleasant properties of loglinearized solutions when the nominal rate is zero," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 216-232.
    6. Born, Benjamin & Pfeifer, Johannes, 2020. "The New Keynesian Wage Phillips Curve: Calvo Vs. Rotemberg," Macroeconomic Dynamics, Cambridge University Press, vol. 24(5), pages 1017-1041, July.
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    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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