On the Indeterminacy of Determinacy and Indeterminacy

Andreas Beyer () and Roger E. A. Farmer ()

No 4101, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A number of authors have attempted to test whether the US economy is in a determinate or an indeterminate equilibrium. We argue that to answer this question, one must impose a priori restrictions on lag length that cannot be tested. We provide examples of two economic models. Model 1 displays an indeterminate equilibrium, driven by sunspots. Model 2 displays a determinate equilibrium driven by fundamentals. Both models have the same likelihood function and are therefore observationally equivalent.

Keywords: identification; indeterminacy (search for similar items in EconPapers)
JEL-codes: C62 D51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2003-10
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Working Paper: On the indeterminacy of determinacy and indeterminacy (2003)
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