Coordination On Saddle-Path Solutions: The Eductive Viewpoint Linear Univariate Models
AbstractWe 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 InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 7 (2003)
Issue (Month): 01 (February)
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Other versions of this item:
- Evans, G. E. & Guesnerie R., 1999. "Coordination on saddle path solutions : the eductive viewpoint. 1 - linear univariate models," DELTA Working Papers 1999-15, DELTA (Ecole normale supérieure).
- Evans, G.E. & Guesnerie, R., 1999. "Coordination on Saddle Path Solutions: the Eductive Viewpoint. 1- Linear Univariate Models," Papers 1999-15, Laval - Laboratoire Econometrie.
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
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