### Abstract

Convergence to a full-information equilibrium (FIE) in the presence of persistent shocks and asymmetric information about an unknown payoff-relevant parameter θ is established in a classical infinite-horizon partial equilibrium linear model. It is found that, under the usual stability assumptions on the autoregressive process of shocks, convergence occurs at the rate n^{-1/2}, where n is the number of rounds of trade, and that the asymptotic variance of the discrepancy of the full-information price and the market price is independent of the degree of autocorrelation of the shocks. This is so even though the speed of learning θ from prices becomes arbitrarily slow as autocorrelation approaches a unit root level. It follows then that learning the unknown parameter θ and convergence of the equilibrium process to the FIE are not equivalent. Moreover, allowing for non-stationary processes of shocks, the distinction takes a more stark form. Learning θ is neither necessary nor sufficient for convergence to the FIE. When the process of shocks has a unit root, convergence to the FIE occurs but θ can not be learned. When the process is sufficiently explosive and there is a positive mass of perfectly informed agents, θ is learned quickly but convergence to the FIE does not occur.

Original language | English |
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Pages (from-to) | 653-674 |

Number of pages | 22 |

Journal | Review of Economic Studies |

Volume | 63 |

Issue number | 4 |

DOIs | |

Publication status | Published - 1996 |

### ASJC Scopus subject areas

- Economics and Econometrics

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## Cite this

*Review of Economic Studies*,

*63*(4), 653-674. https://doi.org/10.2307/2297798