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Eductive stability in real business cycle models

Listed author(s):
  • George W. Evans

    (University of Oregon [Eugene], University of St Andrews [Fife, Scotland, UK])

  • Roger Guesnerie

    (CDF - Collège de France - Collège de France, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris, PSE - Paris School of Economics)

  • Bruce Mcgough

    (OSU - Oregon State University)

We re-examine issues of coordination in the standard RBC model. Can the unique rational expectations equilibrium be “educed” by rational agents who contemplate the possibility of small deviations from equilibrium? Surprisingly, we find that coordination along this line cannot be expected. Rational agents anticipating small but possibly persistent deviations have to face the existence of retroactions that necessarily invalidate any initial tentative “common knowledge” of the future. This "impossibility" theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.

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File URL: https://halshs.archives-ouvertes.fr/halshs-00565011/document
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Paper provided by HAL in its series PSE Working Papers with number halshs-00565011.

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Date of creation: Dec 2010
Handle: RePEc:hal:psewpa:halshs-00565011
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00565011
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  1. Jess Benhabib & Roger E.A. Farmer, 1992. "Indeterminacy and Increasing Returns," UCLA Economics Working Papers 646, UCLA Department of Economics.
  2. Desgranges, Gabriel & Ghosal, Sayantan, 2010. "P-Stable Equilibrium : Definition and Some Properties," The Warwick Economics Research Paper Series (TWERPS) 952, University of Warwick, Department of Economics.
  3. Stefano Eusepi & Bruce Preston, 2008. "Expectations, Learning And Business Cycle Fluctuations," CAMA Working Papers 2008-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, vol. 48(2), pages 337-368, August.
  5. 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.
  6. Hommes, C.H. & Wagener, F.O.O., 2003. "Does eductive stability imply evolutionary stability?," CeNDEF Working Papers 03-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  7. Evans, George W. & Honkapohja, Seppo, 2001. "Expectations and the Stability Problem for Optimal Monetary Policies," CEPR Discussion Papers 2805, C.E.P.R. Discussion Papers.
  8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
  9. R. Guesnerie, 2002. "Anchoring Economic Predictions in Common Knowledge," Econometrica, Econometric Society, vol. 70(2), pages 439-480, March.
  10. Stéphane Gauthier & Roger Guesnerie, 2005. "Comparing Expectational Stability Criteria in Dynamic Models: A Preparatory Overview," Post-Print hal-00731535, HAL.
  11. Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
  12. Roger Guesnerie & George W. Evans, 2005. "Coordination on saddle-path solutions: the eductive viewpoint--linear multivariate models," Post-Print halshs-00754056, HAL.
  13. Cars Hommes, 2010. "The heterogeneous expectations hypothesis: some evidence from the lab," Post-Print hal-00753041, HAL.
  14. D. B. Bernheim, 2010. "Rationalizable Strategic Behavior," Levine's Working Paper Archive 661465000000000381, David K. Levine.
  15. Akihiko Matsui & Daisuke Oyama, 2002. "Rationalizable Foresight Dynamics: Evolution and Rationalizability," Vienna Economics Papers 0302, University of Vienna, Department of Economics.
  16. Brock, W.A., 1995. "A Rational Route to Randomness," Working papers 9530, Wisconsin Madison - Social Systems.
  17. 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.
  18. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695.
  19. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-1050, July.
  20. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
  21. Evans George W. & Guesnerie Roger, 1993. "Rationalizability, Strong Rationality, and Expectational Stability," Games and Economic Behavior, Elsevier, vol. 5(4), pages 632-646, October.
  22. repec:pit:wpaper:518 is not listed on IDEAS
  23. Howitt, Peter, 1992. "Interest Rate Control and Nonconvergence to Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 776-800, August.
  24. Roger Guesnerie & Pedro Jara-Moroni, 2011. "Expectational coordination in simple economic contexts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(2), pages 205-246, June.
  25. George W. Evans & Seppo Honkapohja, 2009. "Learning and Macroeconomics," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 421-451, 05.
  26. Bray, Margaret M & Savin, Nathan E, 1986. "Rational Expectations Equilibria, Learning, and Model Specification," Econometrica, Econometric Society, vol. 54(5), pages 1129-1160, September.
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