Abstract
Expectations play a key role in macroeconomics. The assumption of rational expectations has been recently relaxed by explicit models of forecasting and model updating. Rational expectations can be assessed for stability under various types of learning, with least squares learning playing a prominent role. In addition to assessing the plausibility of an equilibrium, learning also provides a selection criterion when there are multiple equilibria. Monetary policy should be designed to avoid instability under learning and to facilitate coordination on desirable equilibria. Learning can also help to explain macroeconomic fluctuations as arising through either instabilities, stable indeterminacies or persistent learning dynamics.
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Evans, G.W., Honkapohja, S. (2018). Learning in Macroeconomics. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2003
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2003
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