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Multiple Equilibria in Heterogeneous Expectations Models
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William Branch
Veröffentlicht/Copyright:
15. Dezember 2004
Abstract
This paper fills an important gap in the literature on determinacy and existence of sunspot equilibria in stochastic linear self-referential models. The results in this paper demonstrate that heterogeneity in expectations may alter a model's regions of determinacy. We show how to associate with a heterogeneous expectations model (HE-model) a rational expectations model (ARE-model), the solutions to which are the equilibria of the HE-model. This association recasts the analysis of determinacy in the HE-model to analysis of determinacy in the ARE-model. We proceed to study a forward looking model and find that the stability properties of rational expectations models may not be robust. In particular, we present new results showing that in some models even a very small fraction of non-rational agents may preclude rational agents from coordinating on sunspots. Also, we present parameterizations of the model in which sunspots exist in the heterogeneous model when they do not exist in the rational expectations version of the model.
Published Online: 2004-12-15
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero
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- Monetary Policy and the Information Content of the Yield Spread
- The Dynamics of Fertility and Growth: Baby Boom, Bust and Bounce-Back
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- Assessing Aggregate Tests of Efficiency for Dynamic Economies
- The Output Gap, Expected Future Inflation and Inflation Dynamics: Another Look
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Schlagwörter für diesen Artikel
Heterogeneous Beliefs;
Adaptive Expectations;
Rational Expectations;
Sunspot Equilibria
Artikel in diesem Heft
- Advances Article
- Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero
- Contributions Article
- Aggregate Price Changes and Dispersion: A Comparison of the Equity and Goods and Services Markets
- Dissemination of Technology in Market and Planned Economies
- Interest-Rate Smoothing: Monetary Policy Inertia or Unobserved Variables?
- Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution
- What Does It Take to Explain Procyclical Productivity?
- Endogenous Distribution, Politics, and the Growth-Equity Tradeoff
- Explaining Speculative Expansions
- Tariffs, Entry Regulation and Markups: Country Size Matters
- Schumpeterian Growth, North-South Trade and Wage Rigidity
- Do Federal Reserve Policy Surprises Reveal Superior Information about the Economy?
- Bailouts and Bank Runs in a Model of Crony Capitalism
- Multiple Equilibria in Heterogeneous Expectations Models
- Topics Article
- Empirical Perspectives on Long-Term External Debt
- Output Gap Uncertainty and Monetary Policy During the 1970s
- The UK Household Sector Demand for Risky Money
- The Relationship between Stock Prices, House Prices and Consumption in OECD Countries
- Labor Market Performance and Flexibility: Which Comes First?
- A Simple Locally Interactive Model of Ergodic and Nonergodic Growth
- Do Minimum Wages Raise the NAIRU?
- Strictly Endogenous Growth with Non-renewable Resources Implies an Unbounded Growth Rate
- Creative Destruction and Policy in a Model of Endogenous Growth
- Intergenerational Habits, Fiscal Policy, and Welfare
- Output Composition of the Monetary Policy Transmission Mechanism in Japan
- Socio-Cultural Variables and Economic Success: Evidence from Italian Provinces 1951-1991
- Monetary Policy and the Information Content of the Yield Spread
- The Dynamics of Fertility and Growth: Baby Boom, Bust and Bounce-Back
- Imbalance Effects in the Lucas Model: an Analytical Exploration
- Assessing Aggregate Tests of Efficiency for Dynamic Economies
- The Output Gap, Expected Future Inflation and Inflation Dynamics: Another Look
- Unions and Workforce Adjustment Costs
