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Saddlepath Learning

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  • Martin Ellison
  • Joseph Pearlman

Abstract

Saddlepath learning occurs when agents learn adaptively using a perceived law of motion that has the same form as the saddlepath relationship in rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise Minimum State Variable results previously derived only under full information. When the system is determinate, we show that a learning process based on the saddlepath is always e-stable. When the system is indeterminate, we find there is a unique MSV solution that is iteratively e-stable. However, in this case there is a sunspot solution that is learnable as well. We conclude by demonstrating that our results hold for any information set.

Suggested Citation

  • Martin Ellison & Joseph Pearlman, 2010. "Saddlepath Learning," Economics Series Working Papers 505, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:505
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Rational Expectations and Phillips Curves
      by Mainly Macro in Mainly Macro on 2012-03-11 15:03:00
    2. Rational Expectations and Phillips Curves
      by Mainly Macro in Mainly Macro on 2012-03-11 15:03:00

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    Cited by:

    1. Ascari, Guido & Florio, Anna & Gobbi, Alessandro, 2017. "Transparency, expectations anchoring and inflation target," European Economic Review, Elsevier, vol. 91(C), pages 261-273.
    2. Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2011. "Minimal state variable solutions to Markov-switching rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 35(12), pages 2150-2166.
    3. Holden, Tom, 2008. "Rational macroeconomic learning in linear expectational models," MPRA Paper 10872, University Library of Munich, Germany.
    4. Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
    5. Mikhail Anufriev & John Duffy & Valentyn Panchenko, "undated". "Planar Beauty Contests," Discussion Papers 2019-06, School of Economics, The University of New South Wales.
    6. Cho, Seonghoon, 2014. "Saddlepath learning, MSV learning and consistency of subjective expectations," Economics Letters, Elsevier, vol. 125(2), pages 319-322.
    7. Wang, Xuan, 2023. "A macro-financial perspective to analyse maturity mismatch and default," Journal of Banking & Finance, Elsevier, vol. 151(C).
    8. Anufriev, Mikhail & Duffy, John & Panchenko, Valentyn, 2022. "Learning in two-dimensional beauty contest games: Theory and experimental evidence," Journal of Economic Theory, Elsevier, vol. 201(C).
    9. Paul Levine & Joseph Pearlman & George Perendia & Bo Yang, 2012. "Endogenous Persistence in an estimated DSGE Model Under Imperfect Information," Economic Journal, Royal Economic Society, vol. 122(565), pages 1287-1312, December.
    10. Tom Holden, 2012. "Learning from learners," School of Economics Discussion Papers 1512, School of Economics, University of Surrey.
    11. Guido Ascari & Argia M. Sbordone, 2014. "The Macroeconomics of Trend Inflation," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 679-739, September.
    12. Liam Graham, 2011. "Individual rationality, model-consistent expectations and learning," CDMA Working Paper Series 201112, Centre for Dynamic Macroeconomic Analysis.
    13. Paul Levine & Joseph Pearlman & Bo Yang, 2012. "Imperfect Information, Optimal Monetary Policy and Informational Consistency," School of Economics Discussion Papers 1012, School of Economics, University of Surrey.
    14. Gibbs, Christopher G. & McClung, Nigel, 2019. "Does my model predict a forward guidance puzzle?," Research Discussion Papers 19/2019, Bank of Finland.
    15. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    16. Harashima, Taiji, 2018. "Do Households Actually Generate Rational Expectations? “Invisible Hand” for Steady State," MPRA Paper 88822, University Library of Munich, Germany.
    17. Bhattarai, Keshab, 2014. "Money and economic growth," The Journal of Economic Asymmetries, Elsevier, vol. 11(C), pages 8-18.
    18. Michele Berardi & Jaqueson K. Galimberti, 2012. "On the plausibility of adaptive learning in macroeconomics: A puzzling conflict in the choice of the representative algorithm," Centre for Growth and Business Cycle Research Discussion Paper Series 177, Economics, The University of Manchester.
    19. repec:zbw:bofrdp:019 is not listed on IDEAS
    20. Ellison, Martin, 2018. "Comments on Keynesian economics without the Phillips curve by R.E.A. Farmer and G. Nicolo," Journal of Economic Dynamics and Control, Elsevier, vol. 89(C), pages 151-153.

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    More about this item

    Keywords

    E-stability; Determinacy; Learning; Saddlepath stability;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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