On multiple equilibria and the rational expectations hypothesis

Jean-Marc Tallon

Economic Theory, 1995, vol. 7, issue 1, 113-124

Abstract: This paper analyzes through a simple two-period model the fact that, if some agents hold inside money intertemporally, the second-period "normalization" matters. Thus, there are several equilibria of the second-period economy, indexed by the level of inflation. A concept of equilibrium acknowledging this fact, and requiring that agents put some weight on any of the possible second-period equilibrium price vectors is developed. Such an equilibrium is shown to exist, and is illustrated by an example.

Date: 1997-11-09
Note: Received: January 25, 1994; revised version September 22, 1994
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Related works:
Journal Article: On Multiple Equilibria and the Rational Expectations Hypothesis (1996)
Working Paper: On multiple equilibria and the rational expectations hypothesis (1996)
Working Paper: On multiple Equilibria and the Rational Expectations Hypothesis (1994)
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