Learnability of Heterogeneous Misspecification Equilibrium

This paper investigates the learnability of an equilibrium where agents formulate their forecasts under adaptive learning with heterogeneously misspecified econometric models; the equilibrium is called a Heterogeneous Misspecification Equilibrium (HME). The paper finds that the learnability condition of the HME is equal to or less than the condition of the equilibrium under learning with a correctly specified model; that is, heterogeneous misspecification in adaptive learning never makes an equilibrium less learnable. Thus, in a basic New Keynesian model with a Taylor-type monetary policy rule, the central bank should follow the Taylor principle to ensure the learnability of an equilibrium, regardless of whether heterogeneous misspecification exists or not.