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E-stability and stability of adaptive learning in models with private information

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  • Heinemann, Maik

Abstract

The paper demonstrates how the E-stability principle introduced by Evans and Honkapohja [2001. Learning and Expectations in Macroeconomics. Princeton University Press, Princeton, NJ] can be applied to models with heterogeneous and private information in order to assess the stability of rational expectations equilibria under learning. The paper extends already known stability results for the Grossman and Stiglitz [1980. On the impossibility of informationally efficient markets. American Economic Review 70, 393-408] model to a more general case with many differentially informed agents and to the case where information is endogenously acquired by optimizing agents. In both cases it turns out that the rational expectations equilibrium of the model is inherently E-stable and thus locally stable under recursive least squares learning.

Suggested Citation

  • Heinemann, Maik, 2009. "E-stability and stability of adaptive learning in models with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 33(12), pages 2001-2014, December.
    • Handle: RePEc:eee:dyncon:v:33:y:2009:i:12:p:2001-2014
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    References listed on IDEAS

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    1. Roger Guesnerie, 2005. "Assessing Rational Expectations 2: "Eductive" Stability in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072580, April.
    2. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-1430, November.
    3. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    4. Routledge, Bryan R, 1999. "Adaptive Learning in Financial Markets," The Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1165-1202.
    5. Bray, Margaret, 1982. "Learning, estimation, and the stability of rational expectations," Journal of Economic Theory, Elsevier, vol. 26(2), pages 318-339, April.
    6. Xavier Vives, 1993. "How Fast do Rational Agents Learn?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 329-347.
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    Cited by:

    1. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    2. Maik Heinemann, 2010. "Stability under learning of equilibria in financial markets with supply information," Economics Bulletin, AccessEcon, vol. 30(1), pages 383-391.

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