Eductive stability in real business cycle models
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Within the standard RBC model we examine issues of expectational coordination on the unique rational expectations equilibrium. We show the sensitivity of agents’ plans and decisions to their short-run and longrun expectations is too great to trigger eductive coordination in a world of rational agents who are endowed with knowledge of the economic structure and contemplate the possibility of small deviations from equilibrium: eductive stability never obtains. We conclude adaptive learning must play a role in real-time dynamics. Our eductive instability theorem has a counterpart under adaptive learning: even with asymptotic stability the transition dynamics can involve large departures from rational expectations.
Evans , G W , Guesnerie , R & McGough , B 2019 , ' Eductive stability in real business cycle models ' , The Economic Journal , vol. 129 , no. 618 , pp. 821–852 . https://doi.org/10.1111/ecoj.12620
The Economic Journal
Copyright © 2018, Royal Economic Society, published by Wiley. This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1111/ecoj.12620
DescriptionThis work has been supported by National Science Foundation Grant no. SES-1025011 and by the French National Research Agency, through the program Investissements d’Avenir, ANR-10—LABX_93-01.
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