Stable Finite-State Markov Sunspots
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Date
2006-10-09
Authors
Evans, George W., 1949-
McGough, Bruce
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
We consider a linear univariate rational expectations model, with
a predetermined variable, and study existence and stability of solutions
driven by an extraneous finite-state Markov process. We show
that when the model is indeterminate there exists a new class of kstate
dependent sunspot equilibria in addition to the k-state sunspot
equilibria (k-SSEs) already known to exist in part of the indeterminacy
region. The new type of equilibria, which we call ergodic k-SSEs,
are driven by a finite-state sunspot but can have an infinite range of
values even in the nonstochastic model. Stability under econometric
learning is analyzed using representations that nest both types of
equilibria. 2-SSEs and ergodic 2-SSEs are learnable for parameters in
proper subsets of the regions of their existence. Our results extend to
models with intrinsic random shocks.
Description
45 p. Revision of: Stable noisy K-state Markov Sunspots.
Keywords
Markov sunspots, Learning, Indeterminacy, Expectational stability