Abstract:
By endowing his agents with simple forecasting models, or representations, Woodford
(1990) found that finite state Markov sunspot equilibria may be stable under
learning. We show that common factor representations generalize to all sunspot equilibria
the representations used by Woodford (1990). We find that if finite state Markov
sunspots are stable under learning then all sunspots are stable under learning, provided
common factor representations are used.