On the Indeterminacy of Determinacy and Indeterminacy
AbstractA number of authors have attempted to test whether the US economy is in a determinate or an indeterminate equilibrium. We argue that to answer this question, one must impose a priori restrictions on lag length that cannot be tested. We provide examples of two economic models. Model 1 displays an indeterminate equilibrium, driven by sunspots. Model 2 displays a determinate equilibrium driven by fundamentals. Both models have the same likelihood function and are therefore observationally equivalent.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4101.
Date of creation: Oct 2003
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Other versions of this item:
- Beyer, Andreas & Farmer, Roger E. A., 2003. "On the indeterminacy of determinacy and indeterminacy," Working Paper Series 0277, European Central Bank.
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
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