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Eductive stability in real business cycle models

Author

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  • George W. Evans

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

  • Roger Guesnerie

    (Collège de France - Chaire Théorie économique et organisation sociale - CdF (institution) - Collège de France, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Bruce Mcgough

    (OSU - Oregon State University)

Abstract

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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  • George W. Evans & Roger Guesnerie & Bruce Mcgough, 2010. "Eductive stability in real business cycle models," Working Papers halshs-00565011, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00565011
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00565011
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    References listed on IDEAS

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    1. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
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    Cited by:

    1. Evans, George W. & Hommes, Cars & McGough, Bruce & Salle, Isabelle, 2022. "Are long-horizon expectations (de-)stabilizing? Theory and experiments," Journal of Monetary Economics, Elsevier, vol. 132(C), pages 44-63.
    2. Evans, George & Honkapohja, Seppo, 2011. "Learning as a rational foundation for macroeconomics and finance," Bank of Finland Research Discussion Papers 8/2011, Bank of Finland.
    3. Kuhle, Wolfgang, 2021. "Equilibrium with computationally constrained agents," Mathematical Social Sciences, Elsevier, vol. 109(C), pages 77-92.
    4. Gabriel Desgranges & Sayantan Ghosal, 2021. "Partial Consensus in Large Games and Markets," Working Papers 2021_02, Business School - Economics, University of Glasgow.
    5. Gabriel Desgranges & Sayantan Ghosal, 2021. "Heterogeneous beliefs and approximately self-fulfilling outcomes," Working Papers 2021_07, Business School - Economics, University of Glasgow.

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    More about this item

    Keywords

    standard RBC model; coordination;

    JEL classification:

    • 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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