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Small departures from rationality magnify fluctuations

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  • Joao Ricardo Faria

    (University of Texas at Dallas)

Abstract

This note shows that introducing into the economy a few number of agents who do not support sunspots theories magnifies endogenous business cycles fluctuations when the current state of the economic system is sensitive enough to traders' forecasts, or equivalently, in presence of indeterminacy.

Suggested Citation

  • Joao Ricardo Faria, 2004. "Small departures from rationality magnify fluctuations," Economics Bulletin, AccessEcon, vol. 5(5), pages 1-5.
    • Handle: RePEc:ebl:ecbull:eb-04e30002
    as

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    References listed on IDEAS

    as
    1. Roger Guesnerie & Costas Azariadis, 1982. "Prophéties créatrices et persistance des théories," Revue Économique, Programme National Persée, vol. 33(5), pages 787-806.
    2. Costas Azariadis & Roger Guesnerie, 1986. "Sunspots and Cycles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(5), pages 725-737.
    3. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, vol. 58(2), pages 277-307, March.
    4. Evans, George W. & Honkapohja, Seppo & Sargent, Thomas J., 1993. "On the preservation of deterministic cycles when some agents perceive them to be random fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 705-721.
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    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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