Stability and Equilibrium Selection in Learning Models: A Note of Caution

YiLi Chien, Inkoo Cho and B Ravikumar

Review, 2021, vol. 103, issue 4, 477-488

Abstract: Relative to rational expectations models, learning models provide a theory of expectation formation where agents use observed data and a learning rule. Given the possibility of multiple equilibria under rational expectations, the learning literature often uses stability as a criterion to select an equilibrium. This article uses a monetary economy to illustrate that equilibrium selection based on stability is sensitive to specifications of the learning rule. The stability criterion selects qualitatively different equilibria even when the differences in learning specifications are small.

Keywords: learning models; stability; equilibrium selection (search for similar items in EconPapers)
JEL-codes: C60 D84 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:93188

DOI: 10.20955/r.103.477-88

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