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Learning in a large square economy

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  • James B. Bullard
  • John Duffy

Abstract

Learning is introduced into a sequence of large square endowment economies indexed by n, in which agents live n periods. Young agents need to forecast n - 1 periods ahead in these models in order to make consumption decisions, and thus these models constitute multi-step ahead systems. Real time learning is introduced via least squares. The systems studied in this paper are sometimes locally convergent when n = 2,3 but are never locally convergent when . Because the economies studied are analogous, nonconvergence can be attributed solely to the multi-step ahead nature of the forecast problem faced by the agents. We interpret this result as suggesting that beliefs-outcomes interaction may be an important element in explaining actual dynamics in general equilibrium systems of this type.

Suggested Citation

  • James B. Bullard & John Duffy, 1993. "Learning in a large square economy," Working Papers 1994-013, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1994-013
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    References listed on IDEAS

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    1. Kehoe, Timothy J. & Levine, David K., 1990. "The economics of indeterminacy in overlapping generations models," Journal of Public Economics, Elsevier, vol. 42(2), pages 219-243, July.
    2. Marimon Ramon & Spear Stephen E. & Sunder Shyam, 1993. "Expectationally Driven Market Volatility: An Experimental Study," Journal of Economic Theory, Elsevier, vol. 61(1), pages 74-103, October.
    3. Imrohoroglu, Selahattin, 1993. "Testing for sunspot equilibria in the German hyperinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 289-317.
    4. repec:cep:stitep:/1992/248 is not listed on IDEAS
    5. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
    6. Marimon, Ramon & Sunder, Shyam, 1993. "Indeterminacy of Equilibria in a Hyperinflationary World: Experimental Evidence," Econometrica, Econometric Society, vol. 61(5), pages 1073-1107, September.
    7. Bullard James, 1994. "Learning Equilibria," Journal of Economic Theory, Elsevier, vol. 64(2), pages 468-485, December.
    8. Howitt, Peter, 1992. "Interest Rate Control and Nonconvergence to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 776-800, August.
    9. Kehoe, Timothy J. & Levine, David K. & Mas-Colell, Andreu & Woodford, Michael, 1991. "Gross substitutability in large-square economies," Journal of Economic Theory, Elsevier, vol. 54(1), pages 1-25, June.
    10. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
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    Cited by:

    1. Elder, Erick, 1999. "Dynamic Fiscal Policy with Regime-Duration Uncertainty: The Tax-Cut Case," Journal of Macroeconomics, Elsevier, vol. 21(1), pages 29-55, January.

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    Keywords

    Consumption (Economics);

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