Learning equilibria

This paper employs the Hopf bifurcation theorem to prove the existence of complicated equilibrium trajectories under least squares learning in a standard version of the overlapping generations model. The periodic and quasiperiodic learning equilibria exist when the locally unique perfect foresight equilibrium is the monetary steady state, and thus are induced by the introduction of learning alone. Learning equilibria can be stable or unstable depending on higher order derivatives of the underlying utility function not specified by economic theory; examples of both attracting and repelling invariant dosed curves are provided. This research confirms the intuition of some previous authors, who have suggested that stationary equilibrium trajectories under learning may differ from those under rational expectations. I would like to thank Robert Becker and members of my dissertation committee for helpful comments on this and related work. Suggestions made by Michael Woodford materially improved this paper. I also thank Albert Marcet, Mark Salmon, George Evans, Seppo Honkapohja, and participants at the June 1991 Meetings of the Society for Economic Dynamics and Control in Capri, Italy, and the May 1991 Midwest Mathematical Economics meeting at Northwestern University, for helpful discussions. All errors are the author's responsibility.