An Example of Convergence to Rational Expectations with Heterogeneous Beliefs

Mark D Feldman

International Economic Review, 1987, vol. 28, issue 3, 635-50

Abstract: Martingale convergence theorems are used to prove convergence of a sequence of temporary equilibria to the rational-expectations equilibrium. The conte xt is a partial-equilibrium model adapted from earlier work of R. Tow nsend (1978) in which agents have differing initial beliefs regarding the realization of a random variable, u, that indexes the level of a ggregate demand. To optimally choose their output level firms must co njecture the level of output of other firms, and hence must solve an infinite regress in expectations. Without imposing any restrictive di stributional assumptions, it is shown that u is measurable with respe ct to the tail s-field generated by the price process. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1987
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