Equilibrium Determinacy With Behavioral Expectations

Jonathan Adams

No 1008, Working Papers from University of Florida, Department of Economics

Abstract: When do dynamic models with behavioral expectations have unique solutions? I derive a Blanchard-Kahn-style condition that ensures a unique solution exists in a broad class of models: the number of non-predetermined variables must match the number of the model's unstable eigenvalues. With behavioral expectations, an eigenvalue is unstable if it is larger in magnitude than the spectral radius of the expectation operator. The condition is always sufficient, but only necessary for some forms of expectations: many behavioral expectations do not admit sunspot equilibria in some types of models. Next, I illustrate the determinacy conditions in several examples, including the canonical New Keynesian model, which has a unique equilibrium under an interest rate peg when expectations are given by a variety of common heuristics. Finally, I characterize the spectral radii and other properties of a variety of popular behavioral expectations.

JEL-codes: C62 D84 E70 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-dge and nep-evo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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