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Understanding self-fulfilling rational expectations equilibria in real business cycle models

  • Wen, Yi
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Necessary conditions for indeterminacy in standard RBC models have been extensively studied, but intuitive understanding of the economic mechanism that generates indeterminacy has yet to be fully explored. Following the permanent income theory, this paper provides an alternative framework for understanding and deriving the technical conditions of indeterminacy in RBC models. A virtue of this approach is that in deriving the conditions of indeterminacy, one can see clearly not only how indeterminacy arises but also how robust the indeterminacy is to structural perturbations in preferences, technologies, and market structures.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 25 (2001)
Issue (Month): 8 (August)
Pages: 1221-1240

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Handle: RePEc:eee:dyncon:v:25:y:2001:i:8:p:1221-1240
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  13. Beaudry, Paul & Devereux, Michael B., 1995. "Money and the real exchange rate with sticky prices and increasing returns," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 55-101, December.
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