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Slow Learning

Author

Listed:
  • Lawrence Christiano
  • Martin S. Eichenbaum
  • Benjamin K. Johannsen

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 Christiano & Martin S. Eichenbaum & Benjamin K. Johannsen, 2024. "Slow Learning," NBER Working Papers 32358, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32358
    Note: EFG IFM
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    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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