Knife-edge stability is a common property of dynamic monetary models assuming perfect foresight or rational expectations. These models can be closed with the assumption that the economy's equilibrium lies on the unique convergent path (the saddlepath). While this empirically plausible assumption yields sensible results, aggregative models are not specified in sufficient detail to allow one to prove that the saddlepath is the unique equilibrium path. Brock (1974, 1975) and Brock and Scheinkman (1980) have advanced models in which individual preferences are more fully specified and in which, under certain conditions, the uniqueness and stability of equilibrium can be rigorously demonstrated. This paper shows that these uniqueness conditions are economically unreasonable. Therefore, the question these maximizing models address remains unresolved.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
0855.
Length: Date of creation: Aug 1983 Date of revision: Publication status: published as Obstfeld, Maurice, and Kenneth Rogoff. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?" Journal of Political Economy, Vol. 91, No. 4, (August 1983), pp. 675-687. Journal of Economic Literature, Vol . 22, No. 1, (March 1984). Handle: RePEc:nbr:nberwo:0855
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Calvo, Guillermo A, 1979.
"On Models of Money and Perfect Foresight,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(1), pages 83-103, February.
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