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Maik Heinemann
''Stability under learning of equilibria in financial markets with supply information''
( 2010, Vol. 30 No.1 )
In a recent paper Ganguli/Yang (2009) demonstrate, that there can exist multiple equilibria in a financial market model a' la Grossman/Stiglitz (1980) if traders possess private information regarding the supply of the risky asset. The additional equilibria differ in some important respects from the usual equilibrium of the Grossman-Stiglitz type which still exists in this model. This note shows that these additional equilibria are always unstable under eductive learning (cf. Guesnerie (2002)) and adaptive learning via least-squares estimation (cf. Marcet/Sargent (1988) or Evans/Honkapohja (2001)). Regarding the original Grossman-Stiglitz type equilibrium, the stability results are less clear cut, since this equilibrium might be unstable under eductive learning while it is always stable under adaptive learning.
Keywords: Recursive Least Squares Learning, Eductive Stability, Rational Expectations, Private Information
JEL: D8 - Information, Knowledge, and Uncertainty: General
C6 - Mathematical Methods and Programming: General
Manuscript Received : Dec 01 2009 Manuscript Accepted : Jan 28 2010

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