SFB 303 Discussion Paper No. B-303

Author: Zenner, M.

Title: Prediction Error Learning and Rational Expectations in Autoregressive Models with Forecast Feedback
Abstract: The rational expectations hypothesis is supported if rational expectations are stable with respect to reasonable learning procedures. We consider the Stochastic Gradient-Algorithm as a boundedly rational learning procedure in an univariate ARX-Model with forecast feedback. We prove that whenever there exists a stable rational expectations equilibrium and the influence of the forecast feedback is limited the learning agents cannot destabilize the model and learn to form rational expectations with probability one.
Keywords: Rational expectations, learning, model specification
JEL-Classification-Number: C22, C40, C62, D83
Creation-Date: December 1994
URL: ../1994/b/bonnsfb303.pdf

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