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Can the Learnability Criterion Ensure Determinacy in New Keynesian Models?

A. Patrick Minford and Naveen Srinivasan

South Asian Journal of Macroeconomics and Public Finance, 2015, vol. 4, issue 1, 43-61

Abstract: Forward-looking rational expectation (RE) models such as the popular New Keynesian (NK) model do not provide a unique prediction about how the model economy behaves. We need some mechanism that ensures determinacy. McCallum (2012) says it is not needed because models are learnable only with the determinate solution and so the NK model, once learnt in this way, will be determinate. We agree the only learnable solution that has agents converge on the true NK model is the bubble-free one. But once they have converged, they must then understand the model and its full solution therefore including the bubble. Hence, the learnability criterion still fails to pick a unique RE solution in NK models. JEL Classifications: C62, D84

Keywords: New Keynesian; Taylor rule; determinacy; E-stability; learnability (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: Can the Learnability Criterion Ensure Determinacy in New Keynesian Models? (2014) Downloads
Working Paper: Can the learnability criterion ensure determinacy in New Keynesian Models? (2012) Downloads
Working Paper: Can the learnability criterion ensure determinacy in New Keynesian Models? (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:4:y:2015:i:1:p:43-61

DOI: 10.1177/2277978715574615

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