Jim Bullard and Stefano Eusepi.
ABSTRACT:
Since the introduction of rational expectations there have been issues
with multiple equilibria and equilibrium selection. We study the
connections between determinacy of rational expectations equilibrium and
learnability of that equilibrium in a general class of purely
forward-looking models. Our framework is sufficiently flexible to
encompass lags in agents’ information and either finite horizon or
infinite horizon approaches to learning. We are able to isolate
conditions under which determinacy does and does not imply learnability,
and also conditions under which long-horizon forecasts make a clear
difference for learnability. Finally, we apply our result to a
relatively general New Keynesian model.