Expectational stability of sunspot equilibria in non-convex economies

Learning by Doing, Short‐sightedness and Indeterminacy

“…McGough et al . () obtain a similar result in an RBC model where indeterminacy arises due to a negative production externality.…”

“…See Section 3, Evans and McGough (2005a, b) and Duffy and Xiao (2007). 10 See McGough et al (2012) and Evans and McGough (2005c).…”

Short-sighted managers and learnable sunspot equilibria

“…13 This uncertainty is especially relevant for a paper on indeterminacy because other mechanisms that result in indeterminacy tend to be sensitive to the calibrations of these parameters. Relatively inelastic labor supply often eliminates indeterminacy in models similar to Farmer and Guo (1994) , and the results of Yip (2008) , andMcGough et al (2013) require a relatively high, though not implausible, value of σ . This concern does not apply to this paper.…”

“…This result is unusual. The only other examples of robust and learnable indeterminacy are McGough et al (2013) , and Evans and McGough. (2005b ).…”

On the fragility of sunspot equilibria under learning and evolutionary dynamics

“…At the moment there is no theory available when roots are complex for sunspot equilibria in common factor representation, of the type considered in this paper and that have been shown to be learnable in the literature. George Evans and Bruce McGough have hinted at the possibility of such sunspots to exist (see Evans and McGough (2005b), footnote 6; and more recently McGough et al (2013), footnote 7), but the theory is not yet available. The main problem is that when the two eigenvalues are complex, it is not possible to write the sunspot as a serially correlated process with real damping coefficient, so such analysis would require a different framework from the one adopted here and would be beyond the scope of this paper.…”