Abstract
The authors analyze the expectational stability (E-stability) of the different solutions of a linear rational expectations model in which the endogenous variable depends on expectations of its current and future values, formed in the past, and also on its own lagged value. It is shown that continuum of bubble solutions cannot be strongly E-stable. In contrast, for certain parameter values, a particular solution that would normally be identified as a bubble solution can be strongly E-stable. The results are applied to a macroeconomic model with real balance effects. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
