To recover a version of Barro's (1979) `random walk' tax smoothing outcome, we modify Lucas and Stokey's (1983) economy to permit only risk--free debt. This imparts near unit root like behavior to government debt, independently of the government expenditure process, a realistic outcome in the...

This paper fills a gap in the existing literature on least squares learning in linear rational expectations models by studying a setup in which agents learn by fitting ARMA models to a subset of the state variables. This is a natural specification in models with private information because in...