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Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State

Posted: 23 Jul 2002  

George W. Evans

University of Oregon - Department of Economics; University of St. Andrews - School of Economics and Finance

Seppo Honkapohja

Bank of Finland; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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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

Suggested Citation

Evans, George W. and Honkapohja, Seppo, Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State. Journal of Economic Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=315564

George W. Evans (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
541-346-4662 (Phone)
541-346-1243 (Fax)

University of St. Andrews - School of Economics and Finance ( email )

The Scores, Castlecliff
St. Andrews, Fife KY16 8RD
United Kingdom
44-1334-462435 (Phone)

HOME PAGE: http://www.st-andrews.ac.uk/economics/staff/pages.g.evans.shtml

Seppo Honkapohja

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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