Working Paper
Existence of Adaptively Stable Sunspot Equilibria Near an Indeterminate Steady State
George W. Evans, Seppo Honkapohja
CESifo, Munich, 2001
CESifo Working Paper No. 478
CESifo, Munich, 2001
CESifo Working Paper No. 478
We examine the nonlinear model Xt = Et F(xt+1) . Markov SSEs exist near an indeterminate steady state, X = F(X), provided F´(X)> 1. We show that there exist Markov SSEs that are E-stable, and therefore locally stable under adaptive learning, if F´(X)< -1.
Keywords: Indeterminacy, learnability, expectational stability, endogenous fluctuations