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Eductive Stability in Real Business Cycle Models

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  • George W. Evans

    ()
    (University of Oregon Economics Department and University of St. Andrews)

  • Roger Guesnerie

    ()
    (Paris School of Economics and Collège de France)

  • Bruce McGough

    ()
    (Oregon State University)

Abstract

We reexamine issues of coordination in the standard RBC model. Is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium? Surprisingly, we find that coordination cannot be expected. Even with strong common knowledge assumptions, rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption. This “impossibility†theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.

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Bibliographic Info

Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2010-16.

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Length: 33
Date of creation: 13 Nov 2010
Date of revision:
Handle: RePEc:ore:uoecwp:2010-16

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Keywords: Eductive Learning; Instability; Fluctuations;

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  1. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  2. Evans George W. & Guesnerie Roger, 1993. "Rationalizability, Strong Rationality, and Expectational Stability," Games and Economic Behavior, Elsevier, vol. 5(4), pages 632-646, October.
  3. Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
  4. George W. Evans & Seppo Honkapohja, 2008. "Learning and Macroeconomics," University of Oregon Economics Department Working Papers 2008-3, University of Oregon Economics Department.
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  9. John Duffy & Te Bao, 2013. "Adaptive vs. Eductive Learning: Theory and Evidence," Working Papers 518, University of Pittsburgh, Department of Economics, revised Dec 2013.
  10. Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 101(6), pages 2844-72, October.
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  17. Evans, George W & Honkapohja, Seppo, 1995. "Local Convergence of Recursive Learning to Steady States and Cycles in Stochastic Nonlinear Models," Econometrica, Econometric Society, vol. 63(1), pages 195-206, January.
  18. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  19. George W. Evans & Roger Guesnerie, 2003. "Coordination on Saddle-Path Solutions: the Eductive Viewpoint - Linear Multivariate Models," DELTA Working Papers 2003-28, DELTA (Ecole normale supérieure).
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Cited by:
  1. Evans, George W & Honkapohja, Seppo, 2011. "Learning as a rational foundation for macroeconomics and finance," Research Discussion Papers 8/2011, Bank of Finland.

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