Expectational Stability of Resonant Frequency Sunspot Equilibria
AbstractWe consider the stability under adaptive learning of the complete set of solutions to the model when . In addition to the fundamentals solution, the literature describes both finite-state Markov sunspot solutions, satisfying a resonant frequency condition, and autoregressive solutions depending on an arbitrary martingale difference sequence. We clarify the relationships between these solutions and show that the stability properties of equilibria may depend crucially on the representation used by agents in the learning process. Only the finite-state Markov sunspot solutions can be stable under learning.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 497.
Date of creation: 2001
Date of revision:
Indeterminacy; representations of solutions; learnability; expectational stability; endogenous fluctuations;
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