Three Essays on Adaptive Learning in Monetary Economics

Adaptive learning is important in dynamic models since it is a process that shows the improvement in the understanding of the agents of the model. Whenever there is a dynamic environment, there is a room for improvement through learning. In this thesis I analyze the adaptive learning of the agents in different setups. In my first paper I show that adaptive learning does not eliminate the multiplicity of stationary equilibria in the Diamond overlapping generations model with money and productive capital; both dynamically efficient and inefficient equilibria are found to be stable under adaptive learning. In my second paper I show that the two agents of a natural-rate model, with different beliefs, learn the economy which leads to convergence or endogenous fluctuations of the inflation rate under different conditions. And in my last paper I show that a central bank with an extraneous instrument, "cheap talk" announcements, can influence the private sector to achieve better outcomes than could be obtained by manipulating the nominal interest rate alone with full knowledge of private sector expectation formation and in anything less than full knowledge, the private sector learns to discount announcements.