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INSTABILITY OF SUNSPOT EQUILIBRIA IN REAL BUSINESS CYCLE MODELS UNDER INFINITE HORIZON LEARNING

Published online by Cambridge University Press:  29 August 2017

Yangyang Ji  and
Wei Xiao
Yangyang Ji*
Affiliation:
China Economics and Management Academy, Central University of Finance and Economics, Beijing, China Department of Economics, State University of New York at Binghamton, Binghamton, USA
Wei Xiao
Affiliation:
Department of Economics, State University of New York at Binghamton, Binghamton, USA
*
Address correspondence to: Yangyang Ji, China Economics and Management Academy, Central University of Finance and Economics, No. 39, South College Road, Haidian District, 100081 Beijing, China; Department of Economics, State University of New York at Binghamton, 13902 Binghamton, NY, USA; e-mail: [email protected].
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Abstract

This paper examines the stability of sunspot equilibria in one-sector RBC models under infinite horizon learning. We present general conditions under which the reduced-form model can possess E-stable sunspot equilibria and apply these conditions to three prominent one-sector RBC models. We find that the rational expectations sunspot equilibria are generally unstable under learning.

Keywords

Adaptive LearningReal Business Cycle ModelsIndeterminacyRational Expectations
Type
Articles
Information
Macroeconomic Dynamics , Volume 22 , Issue 8 , December 2018 , pp. 1978 - 2006
Copyright
Copyright © Cambridge University Press 2017 

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