Coordination on Saddle-Path Solutions: The Eductive Viewpoint -- Linear Multivariate Models
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Date
2003-10-10
Authors
Evans, George W., 1949-
Guesnerie, R.
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
We examine local strong rationality (LSR) in multivariate models with both forward-looking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive stability conditions for the solution to be LSR. In the saddlepoint stable case the saddle-path solution is LSR provided the model is structurally homogeneous across agents. However, the eductive stability conditions are strictly more demanding when heterogeneity is present, as can be expected in multisectoral models. Heterogeneity is thus a potentially important source of instability even in the saddlepoint stable case.
Description
Keywords
Mathematical and quantitative methods, Mathematical methods and programming, Game theory and bargaining theory, Noncooperative games, Existence and stability conditions of equilibrium