Slow Learning

Lawrence Christiano, Martin Eichenbaum and Benjamin K. Johannsen
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Benjamin K. Johannsen: https://www.federalreserve.gov/econres/benjamin-k-johannsen.htm

No 2026-039, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper provides an analytic characterization of the speed of convergence under learning to a rational expectations equilibrium (REE) for a large class of multivariate models. We show that learning is slower when people's beliefs about model outcomes are more self-fulfilling. The paper also investigates which features of a model economy make beliefs more self-fulfilling, using variants of the simple new-Keynesian model and a medium-scale DSGE model. For empirically plausible specifications of these models, convergence of a learning equilibrium to the REE is so slow that analysis based on rational expectations can be misleading.

Keywords: monetary policy; dynamic stochastic general equilibrium (DSGE) models; fiscal policy; inflation expectations (search for similar items in EconPapers)
JEL-codes: D84 E10 E52 E62 (search for similar items in EconPapers)
Pages: 75 p.
Date: 2026-06-04
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Working Paper: Slow Learning (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103399

DOI: 10.17016/FEDS.2026.039

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