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Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady StateGeorge W. EvansUniversity of Oregon - Department of Economics; University of Saint Andrews - School of Economics and Finance Seppo HonkapohjaBank of Finland; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Journal of Economic Theory, Forthcoming Abstract: 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 Accepted Paper SeriesDate posted: July 23, 2002Suggested CitationContact Information
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