Another weakness of “determinacy” as a selection criterion for rational expectations models

This paper argues against determinacy as a guide to interpret rational expectations solutions, using an example in which a determinate solution exists but differs sharply in dynamic behavior from that implied by the model considered on a sector-by-sector basis.

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Bibliographic Details
Published in:Economics letters 2009-07, Vol.104 (1), p.17-19
Main Authors: Cho, Seonghoon, McCallum, Bennett T.
Format: Article
Language:English
Subjects:
Determinacy
Determinacy Stability Rational expectations
Dynamics
Modelling
Rational expectations
Stability
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Description
Summary:This paper argues against determinacy as a guide to interpret rational expectations solutions, using an example in which a determinate solution exists but differs sharply in dynamic behavior from that implied by the model considered on a sector-by-sector basis.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2009.03.005