E-stability in the stochastic Ramsey model

Analytical expectational stability results are obtained for both Euler-equation and infinite-horizon adaptive learning in a simple stochastic growth model. The rational expectations equilibrium is stable under both types of learning, though there are important differences in the learning dynamics.

► Euler-equation learning and infinite-horizon learning are contrasted in the stochastic Ramsey model. ► Analytical expectational stability results are obtained for both learning rules. ► Excess volatility of consumption and investment is illustrated for the two learning rules relative to rational expectations.