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Representations And Sunspot Stability

Author

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  • Evans, George W.
  • McGough, Bruce

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.

Suggested Citation

  • Evans, George W. & McGough, Bruce, 2011. "Representations And Sunspot Stability," Macroeconomic Dynamics, Cambridge University Press, vol. 15(1), pages 80-92, February.
    • Handle: RePEc:cup:macdyn:v:15:y:2011:i:01:p:80-92_99
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    Cited by:

    1. Gaballo, Gaetano, 2013. "Good luck or good policy? An expectational theory of macro volatility switches," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2755-2770.
    2. Evans, George W & McGough, Bruce, 2018. "Equilibrium selection, observability and backward-stable solutions," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 1-10.
    3. Christopher Gibbs & Nigel McClung, 2023. "Does my model predict a forward guidance puzzle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 393-423, December.
    4. Michele Berardi, 2011. "Heterogeneous sunspots solutions under learning and replicator dynamics," Centre for Growth and Business Cycle Research Discussion Paper Series 160, Economics, The University of Manchester.
    5. Berardi, Michele, 2015. "On the fragility of sunspot equilibria under learning and evolutionary dynamics," Journal of Economic Behavior & Organization, Elsevier, vol. 112(C), pages 251-265.
    6. Evans, George W. & McGough, Bruce, 2020. "Stable near-rational sunspot equilibria," Journal of Economic Theory, Elsevier, vol. 186(C).
    7. Christopher Gibbs & Nigel McClung, 2023. "Does my model predict a forward guidance puzzle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 393-423, December.
    8. McClung, Nigel, 2020. "E-stability vis-à-vis determinacy in regime-switching models," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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