Assessing rational expectations 2 : "eductive" stability in economics / Roger Guesnerie.

Format:

Book

Author/Creator:

Guesnerie, R.

Language:

English

Subjects (All):

Economic stabilization--Mathematical models.

Economic stabilization.

Rational expectations (Economic theory).

Physical Description:

xxviii, 455 pages : illustrations ; 24 cm

Other Title:

Assessing rational expectations two

Place of Publication:

Cambridge, Mass. : MIT Press, [2005]

Summary:

The rational expectations hypothesis (REH) dominates economic modeling in areas ranging from monetary theory, macroeconomics, and general equilibrium to finance. In this book Roger Guesnerie continues the critical analysis of the REH begun in his Assessing Rational Expectations: Sunspot Multiplicity and Economic Fluctuations, which dealt with the questions raised by multiplicity and its implications for a theory of endogenous fluctuations. This second volume emphasizes "eductive" learning: relying on careful reasoning, agents must deduce what other agents guess, a process that differs from the standard evolutionary learning experience in which agents make decisions about the future based on past experiences. A broad "eductive" stability test is proposed that includes common knowledge and results in a unique "rationalizable expectations equilibrium." This test provides the basis for Guesnerie's theoretical assessment of the plausibility of the REH's expectational coordination, emphasizing, for different categories of economic models, the conditions for the REH's success or failure.

Guesnerie begins by presenting the concepts and methods of the eductive stability analysis in selected partial equilibrium models. He then explores to what extent general equilibrium strategic complementarities interfere with partial equilibrium considerations in the formation of stable expectations. Guesnerie next examines two issues relating to eductive stability in financial market models, speculation, and asymmetric price information. The dynamic settings of an infinite horizon model are then taken up, and particular standard and generalized saddle-path solutions are scrutinized. Guesnerie concludes with a review of general questions and some "cautious" remarks on the policy implications of his analysis.

Contents:

I Eductive Stability: Introductory Analysis and Overview

1 An Exploration of the Eductive Justifications of the Rational-Expectations Hypothesis 3

2 Rationalizability, Strong Rationality, and Expectational Stability / George W. Evans 47

3 Anchoring Economic Predictions in Common Knowledge 65

II General Equilibrium Expectations: From Macroeconomics to Microeconomics

4 Short-Run Expectational Coordination: Fixed versus Flexible Wages 117

5 On the Robustness of the Analysis of Expectational Coordination: From 3 to n + 2 Goods 151

6 Eductive Stability in Sequential Exchange Economies: An Introduction / Hector Calvo Pardo 171

III Coordination in Finance Models

7 (De)stabilizing Speculation on Futures Markets: An Alternative Viewpoint / Jean-Charles Rochet 185

8 Common Knowledge and the Information Revealed through Prices: Some Conjectures / Gabriel Desgranges 209

9 Do Prices Transmit Rationally Expected Information? / Gabriel Desgranges, Pierre-Yves Geoffard 221

10 Eductively Stable Transmission of Information through Prices: A Brief Review of Results / Gabriel Desgranges 259

IV Intertemporal Eductive Stability

11 Successes and Failures in Coordinating Expectations 283

12 Coordination on Saddle-Path Solutions: The Eductive Viewpoint-Linear Univariate Models / George W. Evans 313

13 Comparing Expectational Stability Criteria in Dynamic Models: A Preparatory Overview / Stephane Gauthier 343

14 The Government and Market Expectations 383.

Notes:

Includes bibliographical references (pages [429]-443) and index.

ISBN:

0262072580

OCLC:

56198617