Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State
George W. Evans
University of Oregon - Department of Economics; University of St. Andrews - School of Economics and Finance
Bank of Finland; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Journal of Economic Theory, Forthcoming
We examine the nonlinear model x(t)=E(t)F(x(t+1)). Markov SSEs (stationary sunspot equilibria) exist near an indeterminate steady state, x=F(x), provided |F'(x)| >1. Despite the importance of indeterminacy in macroeconomics, earlier results have not provided conditions for the existence of adaptively stable SSEs near an indeterminate steady state. We show that there exist Markov SSEs near x that are E-stable, and therefore locally stable under adaptive learning, if F'(x)<-1.
Keywords: Indeterminacy, Learnability, Expectational Stability, Endogenous Fluctuations
JEL Classification: C62, D83, D84, E31, E32
Date posted: July 23, 2002
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