EXPECTATIONS OF LEARNING AGENTS AND STABILITY OF PERFECT FORESIGHT EQUILIBRIA IN DISCRETE TIME DYNAMIC ECONOMIC MODELS

We study the global dynamic properties of stationary equilibria in discrete time deterministic models under bounded rationality. We assume agents' ability to learn from the past performance of their expectations formation mechanism, so that such mechanism itself is made endogenous. We determine sufficient conditions under which this type of error learning behaviour enhances the stability properties of the economic system and rules out non-perfect foresight cycles. This outcome, while partly at odds with some existing results in the economic literature, seems plausible from the point of view of economic intuition.