Existence of Adaptively Stable Sunspot Equilibria near an Indeterminate Steady State
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Date
2002-04-06
Authors
Evans, George W., 1949-
Honkapohja, Seppo, 1951-
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept. of Economics
Abstract
We examine the nonlinear model x_t = E_t F(x_(t+1)). Markov SSEs exist near an indeterminate steady state, hat(x)=F(hat(x)), provided |F'(hat(x)| > 1. Despite the importance of indeterminancy in macroeconomics, earlier results have not provided conditions for the existance of adaptively stable SSEs near an indeterminate steady state. We show that there exists Markov SSEs near hat(x) that are E-stable, and therefore locally stable under adaptive learning, if F'(hat(x)) < -1.
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Keywords
Endogenous fluctuations, Expectational stability, Learnability, Indeterminacy