Saddlepath learning.

Journal article

Saddlepath learning occurs when agents know the form but not the coefficients of the saddlepath relationship defining rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise Minimum State Variable results previously derived only under full information. When the system is determinate, we show that a learning process based on the saddlepath is always e-stable. When the system is indeterminate, we find there is a unique MSV solution that is iteratively e-stable. However, in this case there is a sunspot solution that is learnable as well. We conclude by demonstrating that our results hold for any information set.

Authors: Ellison, M; Pearlman, J

• Publisher: Elsevier
• Journal: Journal of Economic Theory
• Volume: 146
• Issue: 4
• Pages: 1500 - 1519
• Publication date: 2011-01-01
• DOI: 10.1016/j.jet.2011.03.005
• ISSN: 0022-0531
• Language: English