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Coordination On Saddle-Path Solutions: The Eductive Viewpoint Linear Univariate Models

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  • Evans, George W.
  • Guesnerie, Roger

Abstract

We investigate local strong rationality (LSR) in a one-step-forward-looking univariate model with memory one. Eductive arguments are used to determine when common knowledge (CK) that the solution is near some perfect-foresight path is sufficient to trigger complete coordination on that path (i.e., the path is LSR). Coordination of expectations is shown to depend on three factors: the nature of the CK initial beliefs, the degree of structural heterogeneity, and the information structure. Our sufficient conditions for LSR precisely reflect these features and provide basic consistent justifications for the choice of the saddle-path solution.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 7 (2003)
Issue (Month): 01 (February)
Pages: 42-62

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Handle: RePEc:cup:macdyn:v:7:y:2003:i:01:p:42-62_01

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Cited by:
  1. Richard Dennis & Tatiana Kirsanova, 2013. "Expectations Traps and Coordination Failures with Discretionary Policymaking," ANU Working Papers in Economics and Econometrics 2013-611, Australian National University, College of Business and Economics, School of Economics.
  2. George W. Evans & Bruce McGough, 2003. "Monetary Policy, Indeterminacy and Learning," University of Oregon Economics Department Working Papers 2003-34, University of Oregon Economics Department, revised 01 Apr 2004.
  3. Mordecai Kurz, 2011. "Symposium: on the role of market belief in economic dynamics, an introduction," Economic Theory, Springer, vol. 47(2), pages 189-204, June.
  4. Bai, Yuting & Kirsanova, Tatiana, 2013. "Infrequent Fiscal Stabilization," SIRE Discussion Papers 2013-17, Scottish Institute for Research in Economics (SIRE).
  5. Richard Dennis & Tatiana Kirsanova, 2010. "Expectations Traps and Coordination Failures:Selecting Among Multiple Discretionary Equilibria," CAMA Working Papers 2010-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Haomiao Yu, 2014. "Rationalizability in large games," Economic Theory, Springer, vol. 55(2), pages 457-479, February.
  7. Jara-Moroni, Pedro, 2012. "Rationalizability in games with a continuum of players," Games and Economic Behavior, Elsevier, vol. 75(2), pages 668-684.
  8. repec:hal:wpaper:halshs-00587863 is not listed on IDEAS
  9. repec:hal:wpaper:halshs-00586749 is not listed on IDEAS
  10. repec:hal:wpaper:halshs-00574957 is not listed on IDEAS

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