Stable Finite-State Markov Sunspots
AbstractWe consider a linear univariate rational expectations model, with a predetermined variable, and study existence and stability of solutions driven by an extraneous finite-state Markov process. We show that when the model is indeterminate there exists a new class of k-state dependent sunspot equilibria in addition to the k-state sunspot equilibria (k-SSEs) already known to exist in part of the indeterminacy region. The new type of equilibria, which we call ergodic k-SSEs, are driven by a finite-state sunspot but can have an infinite range of values even in the nonstochastic model. Stability under econometric learning is analyzed using representations that nest both types of equilibria. 2-SSEs and ergodic 2-SSEs are learnable for parameters in proper subsets of the regions of their existence. Our results extend to models with intrinsic random shocks.
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Bibliographic InfoPaper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2006-13.
Date of creation: 09 Oct 2006
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Markov sunspots; Learning; Indeterminacy; Expectational stability;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
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