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Understanding Self-Fulfilling Rational Expectations Equilibria in Real Business Cycle Models

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  • Wen, Yi

    (Cornell U and Hong Kong U of Science and Technology)

Abstract

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.

Suggested Citation

  • Wen, Yi, 2000. "Understanding Self-Fulfilling Rational Expectations Equilibria in Real Business Cycle Models," Working Papers 00-02, Cornell University, Center for Analytic Economics.
    • Handle: RePEc:ecl:corcae:00-02
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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