We derive the optimal monetary policy in a sticky price model when private agents follow adaptive learning. We show that this slight departure from rationality has important implications for policy design. The central bank faces a new intertemporal trade-off, not present under rational...

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...

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...

This chapter provides a survey of the recent work on learning in the context of macroeconomics. Learning has several roles. First, it provides a boundedly rational model of how rational expectations can be achieved. Secondly, learning acts as a selection device in models with multiple REE...

This paper models expectation formation by taking into account that agents produce heterogeneous expectations due to model uncertainty, informational frictions and different capacities for processing information. We show that there are two general classes of steady states within this framework:...

We propose behavioral learning equilibria as a plausible explanation of coordination of individual expectations and aggregate phenomena such as excess volatility in stock prices and high persistence in inflation. Boundedly rational agents use a simple univariate linear forecasting rule and...

We examine the nonlinear model Xt = Et F(xt+1) . Markov SSEs exist near an indeterminate steady state, X = F(X), provided F´(X)> 1. We show that there exist Markov SSEs that are E-stable, and therefore locally stable under adaptive learning, if F´(X)< -1.

We consider the stability under adaptive learning of the complete set of solutions to the model when . In addition to the fundamentals solution, the literature describes both finite-state Markov sunspot solutions, satisfying a resonant frequency condition, and autoregressive solutions depending...