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Eductive Stability in Real Business Cycle Models

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

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

Abstract: We reexamine issues of coordination in the standard RBC model. Is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium? Surprisingly, we find that coordination cannot be expected. Even with strong common knowledge assumptions, rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption. This “impossibility†theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.

Keywords: Eductive Learning; Instability; Fluctuations (search for similar items in EconPapers)
JEL-codes: D84 E32 C62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2010-11-13
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Related works:
Working Paper: Eductive Stability in Real Business Cycle Models (2014) Downloads
Working Paper: Eductive stability in real business cycle models (2010) Downloads
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