Abstract
Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 705-721 |
| Number of pages | 17 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 17 |
| Issue number | 5-6 |
| DOIs | |
| State | Published - 1993 |
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ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
Cite this
On the preservation of deterministic cycles when some agents perceive them to be random fluctuations. / Evans, George W.; Honkapohja, Seppo; Sargent, Thomas.
In: Journal of Economic Dynamics and Control, Vol. 17, No. 5-6, 1993, p. 705-721.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - On the preservation of deterministic cycles when some agents perceive them to be random fluctuations
AU - Evans, George W.
AU - Honkapohja, Seppo
AU - Sargent, Thomas
PY - 1993
Y1 - 1993
N2 - Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.
AB - Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.
UR - http://www.scopus.com/inward/record.url?scp=38248999672&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=38248999672&partnerID=8YFLogxK
U2 - 10.1016/0165-1889(93)90011-G
DO - 10.1016/0165-1889(93)90011-G
M3 - Article
VL - 17
SP - 705
EP - 721
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
IS - 5-6
ER -