On the fragility of sunspot equilibria under learning and evolutionary dynamics
AbstractIn this paper we investigate the possibility of sunspot equilibria to emerge from a process of learning and adaptation on agents' beliefs. To such end, we consider both …finite state Markov sunspots and sunspots in autoregressive form and derive conditions for the existence of an heterogeneous equilibrium where only a fraction of agents condition their forecasts on the sunspot: such conditions impose restrictions across primitive parameters, which are the equivalent, in a heterogeneous setting, of the resonant conditions found in the literature for homogeneous equilibria. We then show that evolutionary dynamics on predictor selection imply that such restrictions need to evolve endogenously with population shares, and argue that such requirement questions the possibility of sunspot equilibria to emerge through a process of evolution and adaptation on agents' beliefs. It follows that, in order for a sunspot equilibrium to obtain, all agents must simultaneously coordinate on using the same sunspot variable at the same time.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 186.
Length: 24 pages
Date of creation: 2013
Date of revision:
Contact details of provider:
Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/
More information through EDIRC
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marianne Sensier).
If references are entirely missing, you can add them using this form.