E-stability and stability of adaptive learning in models with private information

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The paper demonstrates how the E-stability principle introduced by Evans and Honkapohja [2001. Learning and Expectations in Macroeconomics. Princeton University Press, Princeton, NJ] can be applied to models with heterogeneous and private information in order to assess the stability of rational expectations equilibria under learning. The paper extends already known stability results for the Grossman and Stiglitz [1980. On the impossibility of informationally efficient markets. American Economic Review 70, 393-408] model to a more general case with many differentially informed agents and to the case where information is endogenously acquired by optimizing agents. In both cases it turns out that the rational expectations equilibrium of the model is inherently E-stable and thus locally stable under recursive least squares learning.

Original languageEnglish
JournalJournal of Economic Dynamics and Control
Issue number12
Pages (from-to)2001-2014
Number of pages14
Publication statusPublished - 01.12.2009

    Research areas

  • Economics - Recursive least squares learning, E-Stability, Rational expectations, Private information