Indeterminacy and the Stability Puzzle in Non-Convex Economies
We extend common factor analysis to a multi-dimensional setting by considering a bivariate reduced form consistent with many Real Business Cycle type models. We show how to obtain new representations of sunspots and find that there are parameter regions in which these sunspots are stable under learning. However, once the parameters are restricted to coincide with those generated by certain standard models of indeterminacy, we find, under one information assumption, that no stable sunspots exist, and under another information assumption, that they exist only for a very small part of the indeterminacy region. This leads to the following puzzle: why does indeterminacy almost always imply instability in RBC-type models?
|Date of creation:||25 Jul 2002|
|Date of revision:||27 Aug 2005|
|Contact details of provider:|| Postal: 1285 University of Oregon, 435 PLC, Eugene, OR 97403-1285|
Phone: (541) 346-8845
Fax: (541) 346-1243
Web page: http://economics.uoregon.edu/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ore:uoecwp:2002-14. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bill Harbaugh)
If references are entirely missing, you can add them using this form.