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EXPECTATIONS, FORECASTING, AND PERFECT FORESIGHT

A Dynamical Systems Approach

Published online by Cambridge University Press:  01 June 1999

Volker Böhm  and
Jan Wenzelburger
Volker Böhm
Affiliation:
Universität Bielefeld
Jan Wenzelburger
Affiliation:
Universität Bielefeld
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Abstract

The paper studies the nature of expectations formation rules for deterministic economic laws with an expectations feedback within the framework of dynamical systems theory. In such systems, the expectations formation rules, called predictors, have a dominant influence. The concept of a perfect predictor, which generates perfect-foresight orbits, is proposed and analyzed. Necessary and sufficient conditions are given for which local as well as global perfect foresight is possible. The concept is illustrated for the general linear model as well as for models of the cobweb type. For the standard overlapping generations model of economic growth, the existence of perfect predictions depends strongly on the savings behavior of the agents and on the technology.

Keywords

DynamicsPerfect ForesightRational Expectations
Type
Research Article
Information
Macroeconomic Dynamics , Volume 3 , Issue 2 , June 1999 , pp. 167 - 186
Copyright
© 1999 Cambridge University Press

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