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| Tekijä: | Bask, M. |
| Otsikko: | Adaptive learning in an expectational difference equation with several lags: Selecting among learnable REE |
| Lehti: | European Financial Management
2008 : JAN, VOL. 14:1, p. 99-117 |
| Asiasana: | stocks assets pricing exchange rates trading rational expectations models |
| Kieli: | eng |
| Tiivistelmä: | It is shown that adaptive learning in the least squares sense (hereafter as: l-sq-s.) may be incapable of satisfactorily reducing the number of attainable equilibria in a rational expectations (as: exps.) model with focus on the forward-solutions to the model. The examined model is a basic asset pricing model for exchange (here as: exg.) rate (here as: e-rate) determination. Because of technical trading in foreign exg., the current e-rate depends on lags of the e-rate, that is, the model has rational exps. equilibria (REE), with several of them being adaptively learnable in the l-sq-s. However, since past e-rates should not affect the current e-rate when technical trading is absent, it is possible to single out a unique equilibrium among the adaptively learnable equilibria that is economically meaningful. It is worth noting that the model examined can also be viewed as a model for stock price determination. |
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