Hostname: page-component-74656f9884-j7cmm Total loading time: 0 Render date: 2026-11-09T11:26:35.930Z Has data issue: false hasContentIssue false
  • English
  • Français

REPRESENTATIONS AND SUNSPOT STABILITY

Published online by Cambridge University Press:  22 February 2010

George W. Evans  and
Bruce McGough
George W. Evans*
Affiliation:
University of Oregon and University of St. Andrews
Bruce McGough
Affiliation:
Oregon State University
*
Address corresponding to: George Evans, Department of Economics, 1285 University of Oregon, Eugene, OR 97403-1285, USA; e-mail: gevans@uoregon.edu.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

By endowing his agents with simple forecasting models, or representations, M. Woodford (“Learning to Believe in Sunspots,” Econometrica 58, 277–307, 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. 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.

Keywords

IndeterminacySunspot EquilibriaE-Stability

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 1 , February 2011 , pp. 80 - 92
Copyright
Copyright © Cambridge University Press 2010

References

REFERENCES

Azariadis, C. (1981) Self-fulfilling prophecies. Journal of Economic Theory 25, 380–396.Google Scholar
Benhabib, J. and Farmer, R.A. (1994) Indeterminacy and increasing returns. Journal of Economic Theory 63, 19–41.Google Scholar
Bray, M. and Savin, N. (1986) Rational expectations equilibria, learning, and model specification. Econometrica 54, 1129–1160.CrossRefGoogle Scholar
Cass, D. and Shell, K. (1983) Do sunspots matter? Journal of Political Economy 91, 193–227.CrossRefGoogle Scholar
Clarida, R., Gali, J. and Gertler, M. (2000) Monetary policy rules and macroeconomic stability: Evidence and some theory. Quarterly Journal of Economics 115, 147–180.Google Scholar
Duffy, J. and Xiao, W. (2007) Instability of sunspot equilibria in real business cycle models under adaptive learning. Journal of Monetary Economics 55, 879–903.Google Scholar
Evans, G.W. and Honkapohja, S. (2001) Learning and Expectations in Macroeconomics. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Evans, G.W. and Honkapohja, S. (2003) Expectational stability of stationary sunspot equilibria in a forward-looking model. Journal of Economic Dynamics and Control, 28, 171–181.Google Scholar
Evans, G.W. and McGough, B. (2005a) Indeterminacy and the stability puzzle in non-convex economies. B.E. Journal of Macroeconomics (Contributions) 5 (1), 8.Google Scholar
Evans, G.W. and McGough, B. (2005b) Stable sunspot solutions in models with predetermined variables. Journal of Economic Dynamics and Control 29, 601–625.Google Scholar
Farmer, R.E. (1999) The Economics of Self-Fulfilling Prophecies, 2nd ed.Cambridge, MA: MIT Press.Google Scholar
Farmer, R.E. and Guo, J.-T. (1994) Real business cycles and the animal spirits hypothesis. Journal of Economic Theory 63, 42–72.CrossRefGoogle Scholar
Guesnerie, R. (1986) Stationary sunspot equilibria in an N-commodity world. Journal of Economic Theory 40, 103–128.Google Scholar
Lubik, T. and Schorfheide, F. (2004) Testing for indeterminacy: an application to U.S. monetary policy. American Economic Review 94, 190–217.CrossRefGoogle Scholar
Shell, K. (1977) Monnaie et Allocation Intertemporelle. Working paper, CNRS Seminaire de E. Malinvaud, Paris.Google Scholar
Woodford, M. (1990) Learning to believe in sunspots. Econometrica 58, 277–307.Google Scholar