when expectations are formed by adaptive learning within a nonlinear approximation of a model. This novel approach is … applied to a standard New Keynesian model that is estimated using U.S. data. The nonlinear model with adaptive learning … improves model fit compared to the linearized model with and without adaptive learning as well as the nonlinear model with …

. Bayesian learning implies that beliefs about the likelihood of rare disasters drop to a much more pessimistic level once a … between rational and adaptive Bayesian learning. Rational learners account for the possibility of future changes in beliefs in …-valued and price-dividend ratios vary less under adaptive versus rational learning for identical priors. Keywords: beliefs …