Limited memory capacity, retrieval constraints and anchoring are central to expectation formation processes. We develop a model of adaptive expectations where individuals are able to store only a finite number of past experiences of a stochastic state variable. Retrieval of these experiences is...

This chapter investigates the implications of adaptive learning in the private sector's formation of inflation expectations for the conduct of monetary policy. We first review the literature that studies the implications of adaptive learning processes for macroeconomic dynamics under various...