On Learning Equilibria

Florian Wagener and Jan Tuinstra

No 217, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: We investigate an inflationary overlapping generations model where households predict future inflation rates by running a least squares regression of inflation rates or prices on their past levels. We critically examine the results on learning equilibria obtained by Bullard (1994) and Schönhofer (1999) in this framework. They show that an increase in the money growth rate may lead to limit cycles and endogenous business cycles. We suggest an alternative estimation procedure, that starts from the same perceived law of motion, but is more sensible from an econometrician's point of view. We prove that for this estimation procedure there is global convergence on the monetary steady for a large set of savings functions. We also study, in a heterogeneous agents framework, evolutionary competition between the two estimation procedures, where the fraction of the population using a certain estimation procedure is determined by its past average quadratic forecast error. Interestingly, the more sensible estimation procedure is not always able to drive out the other estimation procedure, and endogenous business cycles may still be observed in this heterogeneous world

Keywords: overlapping generations; learning; endogenous business cycles; heterogeneous beliefs; evolutionary dynamics (search for similar items in EconPapers)
JEL-codes: D84 D90 E32 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-evo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://repec.org/sce2004/up.30765.1077899151.pdf (application/pdf)

Related works:
Journal Article: On learning equilibria (2007)
Working Paper: On Learning Equilibria (2003)
Working Paper: On learning equilibria (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf4:217

Access Statistics for this paper

More papers in Computing in Economics and Finance 2004 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().