As explained in Hommes (2018), equilibria in dynamic systems, like DSGE models, can either be determinate or indeterminate. A REE (rational expectations equilibrium) is determinate when there exists a unique solution, typically a saddle-path solution converging to the rational steady state. A REE is indeterminate when multiple solutions converging to the steady state exist.

question 1: so, there still is only one solution? But just multiple paths to get there? So, this equilibrium is still stable, once there?

Then Hommes (20180 goes on: A determinate solution can be computed, assuming that the equations of the economy are common knowledge.

A learning theory of coordination on a equilibrium, without the demanding assumption of perfect knowledge of the law of motion of the economy, is however lacking (Hommes, 2018). Without an adaptive learning process coordination on an equilibrium, even if it is unique, seems unlikely.

question 2: What would he mean here? There is no accepted general theory of how one converges to an equilibrium if RE are relaxed and replaced by adaptive learning? OK... @Without an adaptive learning process@ means what? RE?



Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.