While under recursive least squares learning the dynamics of the economy converges to rational expectations equilibria (REE) which are E–stable, some recent examples propose that E–stability is not a sufficient condition for learnability. In this paper, we provide some further...

In this paper we analyse the effect of model uncertainty on the wealth and utility outcomes of an investment decision. We compute optimal portfolio weights for domestic and foreign assets and using these weights we construct end investment horizon wealth and utility ratios. Model uncertainty is...

In this paper, we propose a heterogeneous interacting agent model of a sequential monetary production economy. We use a basic dynamic flow model in an interacting agent context. The economy is assumed to be closed. There are three classes of agents: a single homogeneous representative consumer,...

In most existing DSGE models, parameters are supposed constant and exogenous shocks have zero mean. This makes difficult to treat structural change and anticipated effects of future reforms. Introducing dummy variables in the DSGE model can only handle unexpected changes. This papers deals with...

This paper uses a small, calibrated forward-looking model of the euro-area economy to investigate the implications of incomplete information about potential output for the conduct and the design of monetary policy. Three sets of issues are examined. First, the certainty-equivalent optimal policy...

We examine the dynamic properties of equilibrium stock returns in an incomplete information economy in which the agents need to learn the hidden state of the endowment process. We consider both the case of optimal Bayesian learning and suboptimal learning, including near-rational learning, over-...