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Understanding self-fulfilling rational expectations equilibria in real business cycle models

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  • Wen, Yi
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Abstract

Necessary conditions for indeterminacy in standard RBC models have been extensively studied, but intuitive understanding of the economic mechanism that generates indeterminacy has yet to be fully explored. Following the permanent income theory, this paper provides an alternative framework for understanding and deriving the technical conditions of indeterminacy in RBC models. A virtue of this approach is that in deriving the conditions of indeterminacy, one can see clearly not only how indeterminacy arises but also how robust the indeterminacy is to structural perturbations in preferences, technologies, and market structures.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 25 (2001)
Issue (Month): 8 (August)
Pages: 1221-1240

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Handle: RePEc:eee:dyncon:v:25:y:2001:i:8:p:1221-1240

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  1. Wen, Yi, 1998. "Capacity Utilization under Increasing Returns to Scale," Journal of Economic Theory, Elsevier, vol. 81(1), pages 7-36, July.
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  13. Farmer Roger E. A. & Guo Jang-Ting, 1994. "Real Business Cycles and the Animal Spirits Hypothesis," Journal of Economic Theory, Elsevier, vol. 63(1), pages 42-72, June.
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Cited by:
  1. Meng, Qinglai, 2006. "Impatience and equilibrium indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2671-2692, December.
  2. Luís Francisco Aguiar-Conraria & Yi Wen, 2004. "Foreign Trade and Equilibrium Indeterminacy," NIPE Working Papers 5/2004, NIPE - Universidade do Minho.
  3. Jaimovich, Nir, 2008. "Income effects and indeterminacy in a calibrated one-sector growth model," Journal of Economic Theory, Elsevier, vol. 143(1), pages 610-623, November.
  4. Pengfei Wang & Yi Wen, 2007. "Imperfect competition and indeterminacy of aggregate output," Working Papers 2006-017, Federal Reserve Bank of St. Louis.
  5. Kazuo Mino, 2008. "Preference Structure and Volatility in a Financially Integrated World," Discussion Papers in Economics and Business 08-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Doshchyn, Artur & Giommetti, Nicola, 2013. "Learning, Expectations, and Endogenous Business Cycles," MPRA Paper 49617, University Library of Munich, Germany.
  7. Aguiar-Conraria, Luís & Wen, Yi, 2012. "OPEC's oil exporting strategy and macroeconomic (in)stability," Energy Economics, Elsevier, vol. 34(1), pages 132-136.
  8. Meng, Qinglai & Yip, Chong Kee, 2008. "On indeterminacy in one-sector models of the business cycle with factor-generated externalities," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 97-110, March.
  9. Luís Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
  10. Nir Jaimovich, 2007. "Firm Dynamics and Markup Variations: Implications for Sunspot Equilibria and Endogenous Economic Fluctuation," Discussion Papers 07-011, Stanford Institute for Economic Policy Research.
  11. Cazzavillan, Guido & Pintus, Patrick A., 2006. "Capital externalities in OLG economies," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1215-1231, July.
  12. Pintus, Patrick A., 2007. "Local determinacy with non-separable utility," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 669-682, February.
  13. Guo, Jang-Ting & Harrison, Sharon G., 2001. "Indeterminacy with capital utilization and sector-specific externalities," Economics Letters, Elsevier, vol. 72(3), pages 355-360, September.
  14. Yi Wen & Xin Wang, 2013. "Multiplier Effects of Government Spending: A Tale of China," 2013 Meeting Papers 214, Society for Economic Dynamics.
  15. Tarek Coury & Yi Wen, 2007. "Global indeterminacy in locally determinate RBC models," Working Papers 2007-029, Federal Reserve Bank of St. Louis.
  16. Kim, Jinill, 2005. "Does utility curvature matter for indeterminacy?," Journal of Economic Behavior & Organization, Elsevier, vol. 57(4), pages 421-429, August.

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