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Eductive Stability in Real Business Cycle Models

George Evans (), Roger Guesnerie () and Bruce McGough ()

Economic Journal, 2019, vol. 129, issue 618, 821-852

Abstract: Within the standard real business cycle model, we examine issues of expectational coordination on the unique rational expectations equilibrium. We show sensitivity of agents’ plans and decisions to their short-run and long-run expectations is too great to trigger eductive coordination in a world of rational agents who are endowed with knowledge of the economic structure and contemplate the possibility of small deviations from equilibrium: eductive stability never obtains. We conclude adaptive learning must play a role in real-time dynamics. Our eductive instability theorem has a counterpart under adaptive learning: even with asymptotic stability, transition dynamics can involve large departures from rational expectations.

Date: 2019
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Related works:
Working Paper: Eductive Stability in Real Business Cycle Models (2019)
Working Paper: Eductive Stability in Real Business Cycle Models (2019)
Working Paper: Eductive Stability in Real Business Cycle Models (2014) Downloads
Working Paper: Eductive stability in real business cycle models (2010) Downloads
Working Paper: Eductive stability in real business cycle models (2010) Downloads
Working Paper: Eductive Stability in Real Business Cycle Models (2010) Downloads
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