Stable Sunspot Equilibria in Models with Predetermined Variables
University of Oregon, Economics Working Paper No. 239
43 Pages Posted: 1 Aug 2002
Date Written: April 17, 2002
We consider a linear stochastic univariate rational expectations model, with a predetermined variable, and provide alternative representations of SSEs (stationary sunspot equilibria). For a strict subset of the parameter space there exist SSEs that are locally stable under least squares learning provided agents use a common factor representation for their estimated law of motion. These results indicate that for some parameter regions SSEs are more likely to arise under private agent learning than previously recognized.
Keywords: Endogenous fluctuations, learning, expectational stability, sunspot equilibria
JEL Classification: E31, E32, C62, D83, D84,
Suggested Citation: Suggested Citation