Expectational Stability of Sunspot Equilibria in Non-Convex Economies Public Deposited

http://ir.library.oregonstate.edu/concern/defaults/q524jp43h

This is an author's peer-reviewed final manuscript, as accepted by the publisher. The published article is copyrighted by Elsevier and can be found at:  http://www.journals.elsevier.com/journal-of-economic-dynamics-and-control/.

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  • We examine the stability under learning (E-stability) of sunspot equilibria in non-convex real business cycle models. The production technology is Cobb- Douglas with externalities generated by factor inputs. We establish that, with a general utility function, the well-known Benhabib-Farmer condition (Benhabib and Farmer, 1994) – that the labor-demand curve is upward-sloping and steeper than the Frisch labor-supply curve – is necessary for joint indeterminacy and E-stability. Then, with a separable utility function and allowing for negative externalities from capital inputs, we discover large regions in parameter space corresponding to stable indeterminacy, that is, learnable sunspot equilibria. These existence results overturn the conventional wisdom that sunspot equilib- ria in RBC-type models are inherently unstable, and provide concise closure to the stability puzzle of Evans and McGough (2005b).
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  • McGough, B., Meng, Q., & Xue, J. (2013). Expectational stability of sunspot equilibria in non-convex economies. Journal of Economic Dynamics & Control, 37(6), 1126-1141. doi:10.1016/j.jedc.2013.01.012
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  • description.provenance : Approved for entry into archive by Deanne Bruner(deanne.bruner@oregonstate.edu) on 2013-07-22T18:59:46Z (GMT) No. of bitstreams: 1 McGoughBruceEconomicsExpectationalStabilitySunspot.pdf: 591484 bytes, checksum: 58b9f21fee5676b4ce8f2b60e0022fec (MD5)
  • description.provenance : Submitted by Deanne Bruner (deanne.bruner@oregonstate.edu) on 2013-07-22T18:55:39Z No. of bitstreams: 1 McGoughBruceEconomicsExpectationalStabilitySunspot.pdf: 591484 bytes, checksum: 58b9f21fee5676b4ce8f2b60e0022fec (MD5)
  • description.provenance : Made available in DSpace on 2013-07-22T18:59:46Z (GMT). No. of bitstreams: 1 McGoughBruceEconomicsExpectationalStabilitySunspot.pdf: 591484 bytes, checksum: 58b9f21fee5676b4ce8f2b60e0022fec (MD5) Previous issue date: 2013-06

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