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Persistent dynamics in (in)determinate equilibrium rational expectations models

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  • Marco Maria Sorge

Abstract

Equilibrium indeterminacy in rational expectations models is often claimed to produce higher time series persistence relative to determinacy. Proceeding by means of a simple linear stochastic model, I formally show that, for reasonable parameter configurations, there exists an uncountable (continuously infinite) set of indeterminate equilibria in low-order AR(MA) representation, which exhibit strictly lower persistence than their determinate counterpart. Implications for empirical studies concerned with, e.g., testing for indeterminacy and macroeconomic forecasting are discussed.

Suggested Citation

  • Marco Maria Sorge, 2021. "Persistent dynamics in (in)determinate equilibrium rational expectations models," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 11(1), pages 1-11.
    • Handle: RePEc:ids:ijcome:v:11:y:2021:i:1:p:1-11
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