Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on real stock prices: a 25-basis point increase in the nominal interest rate is associated with an immediate decrease in broad real stock indices that may range from 0.6 to 2.2...

We study the extent to which self-referential adaptive learning can explain stylized asset pricing facts in a general equilibrium framework. In particular, we analyze the effects of recursive least squares and constant gain algorithms in a production economy and a Lucas type endowment economy....

It is known that, in the context of a real business cycle model with constant returns to scale and a balanced budget fiscal policy rule, steady state indeterminacy may arise as a result of endogenous labor income tax rates. In this paper, it is shown that when the government finances its...

We analyse some practical aspects of implementing adaptive learning in the context of forward-looking linear models. In particular, we focus on how to set initial conditions for three popular algorithms, namely recursive least squares, stochastic gradient and constant gain learning. We propose...