Abstract
Both rational expectations and perfect foresight models are featured by the following indeterminacy problem: for given initial values of predetermined state variables, there may exist more than one dynamic equilibrium path. This type of indeterminacy arises because there are non-state variables whose initial values must be determined using criteria outside of the formal model. In general ‘the model’ can be expanded to include restrictions that uniquely determine these non-state variables. However, if there are many equally plausible sets of restrictions, the uniqueness issue remains unresolved.
Parts of this chapter are based on ‘Indeterminacy and the Dynamic Properties of Both Rational Expectations and Perfect Foresight Models’ which I presented at the Summer Meetings of the Econometric Society, San Diego, California, 24–27 June 1981. Research support from the National Science Foundation (SES-8218229) is gratefully acknowledged.
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© 1985 George R. Feiwel
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Burmeister, E. (1985). On the Assumption of Convergent Rational Expectations. In: Feiwel, G.R. (eds) Issues in Contemporary Macroeconomics and Distribution. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06879-1_10
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DOI: https://doi.org/10.1007/978-1-349-06879-1_10
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