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Time-Varying Parameters and Endogenous Learning Algorithms



The adaptive learning has primarily focused on decreasing gain learning and constant gain learning. As pointed out theoretically by Marcet and Nicolini (2003) and empirically by Milani (2007) an endogenous learning mechanism may explain key economic behaviors, such as recurrent hyperinflation or time varying volatility. This paper evaluates the mechanism used in those papers in addition to proposing an alternative endogenous learning algorithm. The proposed algorithm outperforms the Marcet and Nicolini's algorithm in simulations and may result in exotic dynamics.

Suggested Citation

  • Eric Gaus, 2013. "Time-Varying Parameters and Endogenous Learning Algorithms," Working Papers 13-02, Ursinus College, Department of Economics.
  • Handle: RePEc:urs:urswps:13-02

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    References listed on IDEAS

    1. Evans, George W. & Ramey, Garey, 2006. "Adaptive expectations, underparameterization and the Lucas critique," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 249-264, March.
    2. Milani, Fabio, 2014. "Learning and time-varying macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 94-114.
    3. Eric Gaus, 2013. "Robust Stability of Monetary Policy Rules under Adaptive Learning," Southern Economic Journal, Southern Economic Association, vol. 80(2), pages 439-453, October.
    4. John Duffy & Wei Xiao, 2007. "The Value of Interest Rate Stabilization Policies When Agents Are Learning," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2041-2056, December.
    5. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, vol. 11(2), pages 139-168.
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    Cited by:

    1. Gaus, Eric & Sinha, Arunima, 2017. "Characterizing investor expectations for assets with varying risk," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 990-999.
    2. Eric Gaus & Arunima Sinha, 2014. "What does the Yield Curve imply about Investor Expectations?," Working Papers 14-02, Ursinus College, Department of Economics.

    More about this item


    Learning; Rational Expectations; Endogenous Learning;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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