Coordination on saddle-path solutions: the eductive viewpoint - linear multivariate models

George W Evans, R Guesnerie

    Research output: Contribution to journalArticlepeer-review

    20 Citations (Scopus)

    Abstract

    We examine local strong rationality (LSR) in multivariate models with both forward-lookin expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive stability conditions for the solution to be LSR. In the saddlepoint stable case the saddle-path solution is LSR provided the model is structurally homogeneous across agents. However, the eductive stability conditions are strictly more demanding when heterogeneity is present, as can be expected in multisectoral models. Heterogeneity is thus a potentially important source of instability even in the saddlepoint stable case. (c) 2005 Elsevier Inc. All rights reserved.

    Original languageEnglish
    Pages (from-to)202-229
    Number of pages28
    JournalJournal of Economic Theory
    Volume124
    Issue number2
    DOIs
    Publication statusPublished - Oct 2005

    Keywords

    • coordination
    • structural heterogeneity
    • strong rationality
    • eductive stability
    • multisectoral models
    • RATIONAL-EXPECTATIONS MODELS
    • STRATEGIC BEHAVIOR
    • STABILITY
    • EQUILIBRIA
    • ECONOMY

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