Expectations, Learning and the Kalman Filter

Keith Cuthbertson

The Manchester School of Economic & Social Studies, 1988, vol. 56, issue 3, 223-46

Abstract: Muth-rational expectations embody instantaneous learning by agents. The author relaxes this assumption and suggests that agents slowly learn about the time series behavior of variables, in a model with time varying parameters. The approach can be made empirically tractable via the Kalman filter. The complex structure of the Kalman filter is reinterpreted in terms of familiar least squares procedures. The importance of "optimal" expectations schemes that embody "learning" are compared with adaptive and Muth-rational approaches. Copyright 1988 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:56:y:1988:i:3:p:223-46

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