Slow Learning

Lawrence Christiano, Martin Eichenbaum and Benjamin K. Johannsen

No 32358, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analytically characterizes the speed of convergence under learning to a rational expectations equilibrium (REE) for a large class of multivariate models in which people’s beliefs about model outcomes are central determinants of those outcomes. The paper then investigates what features of an economy determine whether convergence under learning is fast or slow. We do so by applying our analytic results to the New Keynesian model and studying the impact of the Zero Lower Bound (ZLB) on the speed of convergence to a REE. Under certain circumstances, convergence of a learning equilibrium to the REE equilibrium can be so slow that policy analysis based on rational expectations is very misleading.

JEL-codes: E12 E39 E70 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
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