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Coordination on saddle-path solutions: the eductive viewpoint--linear multivariate models

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  • Evans, George W.
  • Guesnerie, Roger

Abstract

We examine local strong rationality (LSR) in multivariate models with both forward-looking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive stability conditions for the solution to be LSR. In the saddlepoint stable case the saddle-path solution is LSR provided the model is structurally homogeneous across agents. However, the eductive stability conditions are strictly more demanding when heterogeneity is present, as can be expected in multisectoral models. Heterogeneity is thus a potentially important source of instability even in the saddlepoint stable case.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 124 (2005)
Issue (Month): 2 (October)
Pages: 202-229

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Handle: RePEc:eee:jetheo:v:124:y:2005:i:2:p:202-229

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Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:
  1. George W. Evans & Roger Guesnerie & Bruce Mcgough, 2010. "Eductive stability in real business cycle models," PSE Working Papers halshs-00565011, HAL.
  2. Roger Guesnerie & Pedro Jara-Moroni, 2009. "Expectational coordination in simple economic contexts: concepts and analysis with emphasis on strategic substitutabilities," PSE Working Papers halshs-00574957, HAL.
  3. Dennis, Richard & Kirsanova, Tatiana, 2013. "Expectations Traps and Coordination Failures with Discretionary Policymaking," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2013-18, Scottish Institute for Research in Economics (SIRE).
  4. Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers, Business School - Economics, University of Glasgow 2013_01, Business School - Economics, University of Glasgow.
  5. Gaballo, Gaetano, 2013. "Eductive learning and the rationalizability of oligopoly games," Economics Letters, Elsevier, vol. 120(3), pages 401-404.
  6. repec:hal:wpaper:halshs-00587863 is not listed on IDEAS
  7. Cho, In-Koo, 2005. "Introduction to learning and bounded rationality," Journal of Economic Theory, Elsevier, Elsevier, vol. 124(2), pages 127-128, October.
  8. Domenico Colucci & Vincenzo Valori, 2009. "Heterogeneous adaptive expectations and cobweb phenomena," Working Papers - Mathematical Economics, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa 2009-01, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  9. repec:hal:wpaper:halshs-00574957 is not listed on IDEAS
  10. Mordecai Kurz, 2011. "Symposium: on the role of market belief in economic dynamics, an introduction," Economic Theory, Springer, Springer, vol. 47(2), pages 189-204, June.
  11. Gliksberg, Baruch, 2010. "The Role of Consumption-Labor Complementarity as a Source of Macroeconomic Instability," MPRA Paper 24816, University Library of Munich, Germany.
  12. Jara-Moroni, Pedro, 2012. "Rationalizability in games with a continuum of players," Games and Economic Behavior, Elsevier, vol. 75(2), pages 668-684.
  13. repec:hal:wpaper:halshs-00565011 is not listed on IDEAS
  14. Colucci, Domenico & Valori, Vincenzo, 2011. "Adaptive expectations and cobweb phenomena: Does heterogeneity matter?," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(8), pages 1307-1321, August.

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