We provide sufficient conditions and necessary conditions for stability of an economy under structural mixed recursive least squares/stochastic gradient heterogeneous learning of agents with possibly different degrees of inertia. We have found a unifying condition which is sufficient for...

Most studies of optimal monetary policy under learning rely on optimality conditions derived for the case when agents have rational expectations. In this paper, we derive optimal monetary policy in an economy where the Central Bank knows, and makes active use of, the learning algorithm agents...

While under recursive least squares learning the dynamics of the economy converges to rational expectations equilibria (REE) which are E–stable, some recent examples propose that E–stability is not a sufficient condition for learnability. In this paper, we provide some further...

In this paper we perform an in—depth investigation of relative merits of two adaptive learning algorithms with constant gain, Recursive Least Squares (RLS) and Stochastic Gradient (SG), using the Phelps model of monetary policy as a testing ground. The behavior of the two learning...

This paper introduces model uncertainty into a simple Lucas-type monetary model. Inflation depends on agents' expectations and a vector of exogenous random variables. Following (Branch and Evans 2004) agents are assumed to underparameterize their forecasting models. A Misspecification...

We develop a learning rule that generalises the well known fading memory learning in the sense that the weights attached to the available time series data are not constant and are updated in light of the prediction error(s). The underlying idea is that confidence in the available data will be...

Under the assumption of bounded rationality, economic agents learn from their past mistaken predictions by combining new and old information to form new beliefs. The purpose of this paper is to examine how the policy-maker, by affecting private agents' learning process, determines the speed at...

Many models of monetary policy predict a trade-off between inflation and output variance despite compelling evidence that the Federal Reserve has become more aggressive in fighting inflation and there has been a resulting decline in both inflation and output variance. We address this apparent...