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Saddlepath Learning

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  • Martin Ellison
  • Joseph Pearlman

Abstract

Saddlepath learning occurs when agents know the form but not the coefficients of the sad?dlepath relationship defining rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise Min?imum State Variable results previously derived only under full information. When the system is determinate, we show that a learning process based on the saddlepath is always e-stable. When the system is indeterminate, we find there is a unique MSV solution that is iteratively e-stable. However, in this case there is a sunspot solution that is learnable as well. We conclude by demon?strating that our results hold for any information set.

Suggested Citation

  • Martin Ellison & Joseph Pearlman, 2010. " Saddlepath Learning," CDMA Conference Paper Series 0710, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmacp:0710
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Rational Expectations and Phillips Curves
      by Mainly Macro in Mainly Macro on 2012-03-11 15:03:00

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    Cited by:

    1. Paul Levine & Joseph Pearlman & George Perendia & Bo Yang, 2012. "Endogenous Persistence in an estimated DSGE Model Under Imperfect Information," Economic Journal, Royal Economic Society, vol. 122(565), pages 1287-1312, December.
    2. Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2017. "Transparency, expectations anchoring and inflation target," European Economic Review, Elsevier, vol. 91(C), pages 261-273.
    3. Guido Ascari & Argia M. Sbordone, 2014. "The Macroeconomics of Trend Inflation," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 679-739, September.
    4. Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2011. "Minimal state variable solutions to Markov-switching rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2150-2166.
    5. Holden, Tom, 2008. "Rational macroeconomic learning in linear expectational models," MPRA Paper 10872, University Library of Munich, Germany.
    6. Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
    7. Liam Graham, 2011. "Individual rationality, model-consistent expectations and learning," CDMA Working Paper Series 201112, Centre for Dynamic Macroeconomic Analysis.
    8. Michele Berardi & Jaqueson K. Galimberti, 2012. "On the plausibility of adaptive learning in macroeconomics: A puzzling conflict in the choice of the representative algorithm," Centre for Growth and Business Cycle Research Discussion Paper Series 177, Economics, The Univeristy of Manchester.
    9. Paul Levine & Joseph Pearlman & Bo Yang, 2012. "Imperfect Information, Optimal Monetary Policy and Informational Consistency," School of Economics Discussion Papers 1012, School of Economics, University of Surrey.
    10. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    11. Cho, Seonghoon, 2014. "Saddlepath learning, MSV learning and consistency of subjective expectations," Economics Letters, Elsevier, vol. 125(2), pages 319-322.
    12. repec:eee:dyncon:v:89:y:2018:i:c:p:151-153 is not listed on IDEAS
    13. repec:eee:joecas:v:11:y:2014:i:c:p:8-18 is not listed on IDEAS
    14. Tom Holden, 2012. "Learning from learners," School of Economics Discussion Papers 1512, School of Economics, University of Surrey.

    More about this item

    Keywords

    e-stability; determinacy; learning; saddlepath stability.;

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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