We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits. If the intertemporal elasticity of substitution of labor is greater than one, there are two steady states, one determinate and the other indeterminate. If the...

Using the standard real business cycle model with lump-sum taxes, we analyze the impact of fiscal policy when agents form expectations using adaptive learning rather than rational expectations (RE). The output multipliers for government purchases are significantly higher under learning, and fall...

We examine global dynamics under infinite-horizon learning in New Keynesian models where the interest-rate rule is subject to the zero lower bound. The intended steady state is locally but not globally stable. Unstable deflationary paths emerge after large pessimistic shocks to expectations. For...

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the...

We consider robust stability under learning of alternative interest-rate rules. By “robust stability” we mean stability of the rational expectations equilibrium, under discounted (constant gain) least-squares learning, for a range of gain parameters. We find that many interest-rate rules are...

We examine local stability under learning of stationary Markov sunspot equilibria (SSEs) in a simply dynamic nonlinear model. Necessary and sufficient conditions for local convergence of a recursive learning algorithm to SSEs are shown to be given (generically) by expectational stability...