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Eductive Stability in Real Business Cycle Models

  • George W. Evans

    ()

    (University of Oregon Economics Department and University of St. Andrews)

  • Roger Guesnerie

    ()

    (Paris School of Economics and Collège de France)

  • Bruce McGough

    ()

    (Oregon State University)

We reexamine issues of coordination in the standard RBC model. Is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium? Surprisingly, we find that coordination cannot be expected. Even with strong common knowledge assumptions, rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption. This “impossibility†theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.

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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2010-16.

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Length: 33
Date of creation: 13 Nov 2010
Date of revision:
Handle: RePEc:ore:uoecwp:2010-16
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  4. 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.
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  7. George W. Evans & Roger Guesnerie, 2003. "Coordination on Saddle-Path Solutions: the Eductive Viewpoint - Linear Multivariate Models," DELTA Working Papers 2003-28, DELTA (Ecole normale supérieure).
  8. George W. Evans & Seppo Honkapohja, 2008. "Learning and Macroeconomics," University of Oregon Economics Department Working Papers 2008-3, University of Oregon Economics Department.
  9. Sargent, Thomas J., 1993. "Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures," OUP Catalogue, Oxford University Press, number 9780198288695, June.
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  14. Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 101(6), pages 2844-72, October.
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  20. Stéphane Gauthier & Roger Guesnerie, 2004. "Comparing expectational stability criteria in dynamical models: a preparatory overview," DELTA Working Papers 2004-09, DELTA (Ecole normale supérieure).
  21. 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.
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