We examine local strong rationality (LSR) in multivariate models with both forward-looking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive...

Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the...

We consider the stability under adaptive learning of the complete set of solutions to the model x_i=beta(Ei*)(x_i+1) when |beat| 1. In addition to the fundamentals solution, the literature describes both finite-state Markov sunspot solutions and autoregressive solutions depending on an arbitrary...

We examine the nonlinear model x_t = E_t F(x_(t+1)). Markov SSEs exist near an indeterminate steady state, hat(x)=F(hat(x)), provided |F'(hat(x)| 1. Despite the importance of indeterminancy in macroeconomics, earlier results have not provided conditions for the existance of adaptively stable...

Expectations play a central role in modern macroeconomic theories. The econometric learning approach models economic agents as forming expectations by estimating and updating forecasting models in real time. The learning approach provides a stability test for rational expectations and a...

We study the properties of generalized stochastic gradient (GSG) learning in forwardlooking models. We examine how the conditions for stability of standard stochastic gradient (SG) learning both differ from and are related to E-stability, which governs stability under least squares learning. SG...

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the...

We introduce the concept of a Misspecification Equilibrium to dynamic macroeconomics. Agents choose between a list of misspecified econometric models and base their selection on relative forecast performance. A Misspecification Equilibrium is an equilibrium stochastic process in which agents...

This paper identifies two channels through which the economy can generate endogenous inflation and output volatility, an empirical regularity, by introducing model uncertainty into a Lucas-type monetary model. The equilibrium path of inflation depends on agents' expectations and a vector of...

A fundamentals based monetary policy rule, which would be the optimal monetary policy without commitment when private agents have perfectly rational expectations, is unstable if in fact these agents follow standard adaptive learning rules. This problem can be overcome if private expectations are...