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REPRESENTATIONS AND SUNSPOT STABILITY

Published online by Cambridge University Press:  22 February 2010

George W. Evans  and
Bruce McGough
George W. Evans*
Affiliation:
University of Oregon and University of St. Andrews
Bruce McGough
Affiliation:
Oregon State University
*
Address corresponding to: George Evans, Department of Economics, 1285 University of Oregon, Eugene, OR 97403-1285, USA; e-mail: gevans@uoregon.edu.
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Abstract

By endowing his agents with simple forecasting models, or representations, M. Woodford (“Learning to Believe in Sunspots,” Econometrica 58, 277–307, 1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodford. We find that if finite state Markov sunspots are stable under learning then all sunspots are stable under learning, provided common factor representations are used.

Keywords

IndeterminacySunspot EquilibriaE-Stability

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 1 , February 2011 , pp. 80 - 92
Copyright
Copyright © Cambridge University Press 2010

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