Eductive Stability in Real Business Cycle Models
AbstractWe 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 â€œimpossibilityâ€ theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.
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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 2010-16.
Date of creation: 13 Nov 2010
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Eductive Learning; Instability; Fluctuations;
Other versions of this item:
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
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- Evans, George W & Honkapohja, Seppo, 2011.
"Learning as a rational foundation for macroeconomics and finance,"
Research Discussion Papers
8/2011, Bank of Finland.
- Evans, George W. & Honkapohja, Seppo, 2011. "Learning as a Rational Foundation for Macroeconomics and Finance," CEPR Discussion Papers 8340, C.E.P.R. Discussion Papers.
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