Stability of Functional Rational Expectations Equilibria

David Kelly, Jamsheed Shorish

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

In this paper we examine a representative agent forecasting prices in a first-order self-referential overlapping generations model. We first consider intermediate stage learning, where agents update the forecasting rule every m periods. We show that, in theory and simulations, the learning rule does not converge to the rational expectations equilibrium (REE). We next consider two stage learning, where agents learn the functional mapping between the current forecast function and the previous forecast function. We show that in theory and simulations the two stage learning rule converges to the REE. Journal of Economic Literature Classifications Numbers: C62, C63, D83.

Original languageEnglish (US)
Pages (from-to)215-250
Number of pages36
JournalJournal of Economic Theory
Volume95
Issue number2
DOIs
StatePublished - Jan 1 2000

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Rational expectations equilibrium
Simulation
Economics
Price forecasting
Overlapping generations model
Representative agent

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Stability of Functional Rational Expectations Equilibria. / Kelly, David; Shorish, Jamsheed.

In: Journal of Economic Theory, Vol. 95, No. 2, 01.01.2000, p. 215-250.

Research output: Contribution to journalArticle

Kelly, David ; Shorish, Jamsheed. / Stability of Functional Rational Expectations Equilibria. In: Journal of Economic Theory. 2000 ; Vol. 95, No. 2. pp. 215-250.
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