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Determinacy and e-stability under reduced-form learning

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  • Cho, Seonghoon

Abstract

Under reduced-form learning, agents are endowed with an aggregate model, and rational expectations are then replaced with subjective expectations. This paper demonstrates that the reduced-form learning approach may be arbitrary in that a particular representation of aggregate dynamics has particular e-stability properties even though the underlying model’s behavior is meant to be unique.

Suggested Citation

  • Cho, Seonghoon, 2015. "Determinacy and e-stability under reduced-form learning," Economics Letters, Elsevier, vol. 128(C), pages 69-71.
    • Handle: RePEc:eee:ecolet:v:128:y:2015:i:c:p:69-71
    DOI: 10.1016/j.econlet.2015.01.020
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    References listed on IDEAS

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    1. McCallum, Bennett T., 2007. "E-stability vis-a-vis determinacy results for a broad class of linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1376-1391, April.
    2. Sargent, Thomas J. & Vilmunen, Jouko (ed.), 2013. "Macroeconomics at the Service of Public Policy," OUP Catalogue, Oxford University Press, number 9780199666126.
    3. Bruce Preston, 2005. "Learning about Monetary Policy Rules when Long-Horizon Expectations Matter," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September.
    4. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    5. James Bullard & Stefano Eusepi, 2014. "When Does Determinacy Imply Expectational Stability?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(1), pages 1-22, February.
    6. Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
    7. James Bullard & Stefano Eusepi, 2014. "When Does Determinacy Imply Expectational Stability?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 1-22, February.
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    More about this item

    Keywords

    Determinacy; e-stability; Reduced-form learning; Euler-equation learning; Law of iterative expectation;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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