Working Paper

The stability of macroeconomic systems with Bayesian learners

Abstract: We study abstract macroeconomic systems in which expectations play an important role. Consistent with the recent literature on recursive learning and expectations, we replace the agents in the economy with econometricians. Unlike the recursive learning literature, however, the econometricians in the analysis here are Bayesian learners. We are interested in the extent to which expectational stability remains the key concept in the Bayesian environment. We isolate conditions under which versions of expectational stability conditions govern the stability of these systems just as in the standard case of recursive learning. We conclude that the more sophisticated Bayesian learning schemes do not alter the essential expectational stability findings in the literature.

Keywords: Rational expectations (Economic theory);

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2008

Number: 2008-043