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A Dynamical Systems Approach
Published online by Cambridge University Press: 01 June 1999
The paper studies the nature of expectations formation rules for deterministic economic laws with an expectations feedbackwithin the framework of dynamical systems theory. In such systems,the expectations formation rules, called predictors, have a dominant influence. The concept of a perfect predictor, which generates perfect-foresight orbits, is proposed and analyzed. Necessary and sufficient conditions are givenfor which local as well as global perfect foresight is possible.The concept is illustrated for the general linear model as well as for models of the cobweb type. For the standard overlappinggenerations modelof economic growth, the existence of perfect predictions depends strongly on the savings behavior of the agents and on thetechnology.