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Fundamentals versus Beliefs under Almost Common Knowledge

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  • Karp, Larry

Abstract

Modern economic growth models show that the equilibrium outcome may depend on agents' beliefs (expectations) rather than on economic fundamentals (history). In this situation, the equilibrium is indeterminate. However, if agents have "almost common knowledge" rather than common knowledge about the economic fundamentals, this indeterminacy vanishes in one of these models, under certain restrictions. In this situation, the unique competitive equilibrium can be influenced by government policy, just as in standard models.
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  • Karp, Larry, 2000. "Fundamentals versus Beliefs under Almost Common Knowledge," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt1r0927pf, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt1r0927pf
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    Cited by:

    1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
    2. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.

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