Exponentially fading memory learning in forward-looking economic models

In this paper we analyze forward-looking economic models under bounded rati onality. We consider a learning mechanism characterized by exponentially fa ding memory with a learning step not vanishing in the limit. The dynamics o f the model under bounded rationality can be parametrized with respect to t he memory of the learning mechanism. We show that memory plays a stabilizin g role in a local sense: it induces local convergence towards a stationary rational expectations equilibrium and in some cases it does not allow for n onperfect foresight attractors obtained through local bifurcations. We disc uss this learning mechanism in pure exchange overlapping generations models . We also analyze models with predetermined state variables, in this settin g the effect of memory on the learning dynamics is controversial. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification. D83; D84; E2 1; E32.