Expectational Stability of Stationary Sunspot Equilibria in a Forward-looking Linear Model

George William Evans () and Seppo Mikko Sakari Honkapohja ()

University of Oregon Economics Department Working Papers from University of Oregon Economics Department

Abstract: We consider the stability under adaptive learning of the complete set of solutions to the model x_i=beta(Ei*)(x_i+1) when |beat| >1. In addition to the fundamentals solution, the literature describes both finite-state Markov sunspot solutions and autoregressive solutions depending on an arbitrary martingale difference sequence. We clarify the relationships between these solutions and show that the stability properties of equilibria may depend crucially on the representations used by agents in the learning process. Autoregressive forms of solutions are not learnable, but finite-state Markov sunspot solutions are stable under learning if beta < -1.

Keywords: Indeterminacy; representations of solutions; learnability; expectational stability; endogenous fluctuations (search for similar items in EconPapers)
JEL-codes: C62 D83 D84 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2002-01-14

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Related works:
Journal Article: Expectational stability of stationary sunspot equilibria in a forward-looking linear model (2003)
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