It is demonstrated in this paper that adaptive learning in least squares sense may be incapable to reduce, in a satisfactory way, the number of attainable equilibria in a rational expectations model. The model investigated, as an illustration, is the monetary approach to exchange rate...

The inability to reconcile observed levels of foreign exchange rate volatility with predictions derived from rational expectations models represents one of the most persistent challenges in international finance. This paper shows that such excess volatility puzzles arise from informational...