We provide conditions for local stability and instability of an equilibrium point in certain systems of nonautonomous nonstochastic difference equations. In the systems under study the influence of time is present through a positive scalar "gain" parameter which converges in the limit to zero....

We derive 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 expectations:...

I present a simple model where forecasting confidence affects aggregate demand. It is shown that this model has similar stability properties, under statistical and evolutionary learning, as a model without a confidence affect. From this setup, I introduce “Expectational Business Cycles”...

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...

This paper models expectation formation by taking into account that agents may produce heterogeneous expectations because of informational frictions and differing levels of a capacity to process information. We show that there are two general classes of steady states within this framework: those...

This paper provides a survey of results concerning eductive stability of equilibrium in an abstract 2-period exchange economy. Eductive stability is based on the Common Knowledge considerations underlying the work reported in the book Assessing rational expectations: eductive stabiltiy in...

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...