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Coordination On Saddle-Path Solutions: The Eductive Viewpoint—Linear Univariate Models

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  • Evans, George W.
  • Guesnerie, Roger

Abstract

We investigate local strong rationality (LSR) in a one-step-forward-looking univariate model with memory one. Eductive arguments are used to determine when common knowledge (CK) that the solution is near some perfect-foresight path is sufficient to trigger complete coordination on that path (i.e., the path is LSR). Coordination of expectations is shown to depend on three factors: the nature of the CK initial beliefs, the degree of structural heterogeneity, and the information structure. Our sufficient conditions for LSR precisely reflect these features and provide basic consistent justifications for the choice of the saddle-path solution.

Suggested Citation

  • Evans, George W. & Guesnerie, Roger, 2003. "Coordination On Saddle-Path Solutions: The Eductive Viewpoint—Linear Univariate Models," Macroeconomic Dynamics, Cambridge University Press, vol. 7(1), pages 42-62, February.
    • Handle: RePEc:cup:macdyn:v:7:y:2003:i:01:p:42-62_01
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    Cited by:

    1. Evans, George W. & McGough, Bruce, 2005. "Monetary policy, indeterminacy and learning," Journal of Economic Dynamics and Control, Elsevier, vol. 29(11), pages 1809-1840, November.
    2. Evans, George W. & Guesnerie, Roger, 2005. "Coordination on saddle-path solutions: the eductive viewpoint--linear multivariate models," Journal of Economic Theory, Elsevier, vol. 124(2), pages 202-229, October.
    3. Haomiao Yu, 2014. "Rationalizability in large games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 457-479, February.
    4. Yuting Bai & Tatiana Kirsanova, 2013. "Infrequent Fiscal Stabilization," Working Papers 2013_01, Business School - Economics, University of Glasgow.
    5. Roger Guesnerie, 2009. "Macroeconomic and Monetary Policies from the Eductive Viewpoint," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 6, pages 171-202, Central Bank of Chile.
    6. Orlando Gomes, . "Volatility, Heterogeneous Agents and Chaos," The Electronic Journal of Evolutionary Modeling and Economic Dynamics, IFReDE - Université Montesquieu Bordeaux IV.
    7. Dennis, Richard & Kirsanova, Tatiana, 2010. "Expectations Traps and Coordination Failures: Selecting among Multiple Discretionary Equilibria," MPRA Paper 24616, University Library of Munich, Germany.
    8. Jara-Moroni, Pedro, 2012. "Rationalizability in games with a continuum of players," Games and Economic Behavior, Elsevier, vol. 75(2), pages 668-684.
    9. Roger Guesnerie & Pedro Jara-Moroni, 2011. "Expectational coordination in simple economic contexts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(2), pages 205-246, June.
    10. Martin Guzman & Joseph E Stiglitz, 2020. "Towards a dynamic disequilibrium theory with randomness," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(3), pages 621-674.
    11. Richard Dennis & Tatiana Kirsanova, 2013. "Expectations Traps and Coordination Failures with Discretionary Policymaking," ANU Working Papers in Economics and Econometrics 2013-611, Australian National University, College of Business and Economics, School of Economics.
    12. Mordecai Kurz, 2011. "Symposium: on the role of market belief in economic dynamics, an introduction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(2), pages 189-204, June.

    More about this item

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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