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On multiple equilibria and the rational expectations hypothesis

Author

Listed:
  • Jean-Marc Tallon

    (M.A.D. - UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This paper analyzes through a simple two-period model the fact that, if some agents hold inside money intertemporally, the second-period ldquonormalizationrdquo matters. Thus, there are several equilibria of the second-period economy, indexed by the level of inflation. A concept of equilibrium acknowledging this fact, and requiring that agents put some weight on any of the possible second-period equilibrium price vectors is developed. Such an equilibrium is shown to exist, and is illustrated by an example.

Suggested Citation

  • Jean-Marc Tallon, 1996. "On multiple equilibria and the rational expectations hypothesis," Post-Print halshs-00499387, HAL.
    • Handle: RePEc:hal:journl:halshs-00499387
    DOI: 10.1007/BF01212185
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    Cited by:

    1. Jean-Marc Tallon, 1995. "Théorie de l'équilibre général avec marchés financiers incomplets," Revue Économique, Programme National Persée, vol. 46(5), pages 1207-1239.

    More about this item

    Keywords

    multiple equilibria;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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