Existence of Adaptively Stable Sunspot Equilibria Near an Indeterminate Steady State

Posted: 23 Jul 2002

See all articles by George W. Evans

George W. Evans

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

Seppo Honkapohja

Centre for Economic Policy Research (CEPR); Aalto University School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Aalto University - School of Business

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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 and Honkapohja, Seppo, Existence of Adaptively Stable Sunspot Equilibria Near an Indeterminate Steady State. 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 )

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United Kingdom
44-1334-462435 (Phone)

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

Seppo Honkapohja

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Aalto University School of Business ( email )

, PO Box 21210
Aalto FI-00076
Finland

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

Poschinger Str. 5
Munich, DE-81679
Germany

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

Aalto University - School of Business

Finland

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