Can the learnability criterion ensure determinacy in New Keynesian models?

Minford, Patrick and Srinivasan, Naveen 2012. Can the learnability criterion ensure determinacy in New Keynesian models? [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

Forward-looking RE models such as the popular New Keynesian (NK) model do not provide a unique prediction about how the model economy behaves. We need some mechanism that ensures determinacy. McCallum (2011) says it is not needed because models are learnable only with the determinate solution and so the NK model, once learnt in this way, will be determinate. We agree: the only learnable solution that has agents converge on the true NK model is the bubble-free one. But once they have converged they must then understand the model and its full solution therefore including the bubble. Hence the learnability criterion still fails to pick a unique RE solution in NK models.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	07 Oct 2015 15:00
URI:	https://orca.cardiff.ac.uk/id/eprint/77939

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