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Private Uncertainty and Multiplicity

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Author Info

  • Gaballo, G.

Abstract

This paper provides the conditions under which small enough private uncertainty on an aggregate endogenous state of the economy can invalidate uniqueness of the equilibrium. The main result is presented in a fully microfounded macroeconomic model where agents learn from arising prices. The findings apply to a broad class of static signal extraction problems where both fundamental correlation and pay-off externalities jointly contribute to a multiplicity of equilibria. The cases where only one of these two determinants is sufficient for a multiplicity are also isolated and discussed.

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File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT-387.pdf
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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 387.

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Length: 50 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:387

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Related research

Keywords: dispersed information; coordination of expectations; second-order beliefs.;

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Cited by:
  1. Gaballo, G., 2012. "Good Luck or Good Policy? An Expectational Theory of Macro-Volatility Switches," Working papers 402, Banque de France.
  2. Jess Benhabib & Pengfei Wang & Yi Wen, 2013. "Uncertainty and Sentiment-Driven Equilibria," NBER Working Papers 18878, National Bureau of Economic Research, Inc.

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