Adaptive learning in an expectational difference equation with several lags : selecting among learnable REE

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Title: Adaptive learning in an expectational difference equation with several lags : selecting among learnable REE
ISBN: 952-462-272-6
Author: Bask, Mikael
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2006
Series number: 7/2006
Year of publication: 2006
Publication date: 1.3.2006
Published in: Published in European Financial Management, 14, No. 1, 2008, Pages 99-117
DOI: 10.1002/ijfe.380
Pages: 37 s.
Keywords: oppiminen; rationaaliset odotukset; mallit; valuuttakauppa; valuuttakurssit; kaupankäynti; REE;
JEL: C62; F31; G12
Abstract: 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 determination that is augmented with technical trading in the currency market in the form of moving averages since it is the most commonly used technique according to questionnaire surveys.Because of technical trading in foreign exchange, the current exchange rate is dependent on jmax lags of the exchange rate, and the model has, therefore jmax + 1 nonbubble rational expectations equilibria (REE), where most of them are adaptively learnable.However, by assuming that a solution to the model should have a solution to a nested model as its limit, it is possible to single out a unique equilibrium among the adaptively learnable equilibria that is economically meaningful.Key words: asset pricing, heterogenous agents, least squares learnability, rational expectations equilibria and technical trading JEL classification numbers: C62, F31, G12
Note: Ilmestynyt myös EUROPEAN FINANCIAL MANAGEMENT 14 , 1 ; 2008.
Rights: https://helda.helsinki.fi/bof/copyright


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