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This paper investigates the role that imperfect knowledge about the structure of the economy plays in the formation of expectations, macroeconomic dynamics, and the efficient formulation of monetary policy. Economic agents rely on an adaptive learning technology to form expectations and continuously update their beliefs regarding the dynamic structure of(More)
The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Bank of Finland. Abstract Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective(More)
We examine stability under learning of sunspot equilibria in Real Business Cycle type models with indeterminacies. Our analysis emphasizes the importance of examining alternative representations of sunspot solutions. A general bivariate reduced form contains parameter regions in which sunspots are stable under learning. However, for parameters restricted to(More)
We investigate both the rational explosive inflation paths studied by (McCallum 2001), and the classification of fiscal and monetary policies proposed by (Leeper 1991), for stability under least squares (LS) learning of the rational expectations equilibria (REE). Our first result is that the explosive fiscalist REE is not locally stable under LS learning.(More)
We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of SSEs (stationary sunspot equilibria). For a strict subset of the parameter space there exist SSEs that are locally stable under least squares learning provided agents use a common factor representation for their(More)