Estimation of constant gain learning models

Eric Gaus | Ursinus College

Constant Gain Learning models present a unique set of challenges to the econometrician compared to models based on Rational Expectations. This is because of the differences in the equilibrium concept and stability conditions between the two paradigms.

This paper focuses on three key issues: stability conditions, identification and derivation of the likelihood function. Several illustrative examples complement the general estimation methodology to demonstrate the aforementioned issues in practice.