Stationary Bubble Equilibria in Rational Expectation Models

Christian Gourieroux, Joann Jasiak and Alain Monfort

No 2016-31, Working Papers from Center for Research in Economics and Statistics

Abstract: A linear rational expectation model with current expectations can admit a unique linear stationary dynamic equilibrium for a set of specific parameter values. This paper shows that a multiplicity of stationary dynamic equilibria may arise due to the existence of nonlinear stationary equilibria. These nonlinear equilibria can display bubbles and/or volatility induced mean reversion, consistently with the self-fulfilling prophecies that characterize the rational expectation equilibria. The stationary nonlinear dynamic equilibria require a revised approach in the identification issue, in the impulse response analysis in rational expectation models, or in the test of the present value model that are also discussed in this paper.

Keywords: Rational Expectation; Equilibrium; Stationary Martingale; Speculative Bubble; Volatility Induced Mean-Reversion; Stochastic Economy; Transversality Condition; Identi cation; Present Value Model. (search for similar items in EconPapers)
Pages: 100
Date: 2016-10
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Stationary bubble equilibria in rational expectation models (2020)
Working Paper: Stationary Bubble Equilibria in Rational Expectation Models (2020)
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