Authors: Marco Maria Sorge
Addresses: University of Salerno, Via Giovanni Paolo II 132, 84084 Fisciano SA, Italy; University of Göttingen, Alemanya; CSEF, Italy
Abstract: Equilibrium indeterminacy in rational expectations models is often claimed to produce higher time series persistence relative to determinacy. Proceeding by means of a simple linear stochastic model, I formally show that, for reasonable parameter configurations, there exists an uncountable (continuously infinite) set of indeterminate equilibria in low-order AR(MA) representation, which exhibit strictly lower persistence than their determinate counterpart. Implications for empirical studies concerned with, e.g., testing for indeterminacy and macroeconomic forecasting are discussed.
Keywords: rational expectations; indeterminacy; persistence.
International Journal of Computational Economics and Econometrics, 2021 Vol.11 No.1, pp.1 - 11
Received: 23 Mar 2019
Accepted: 25 Jul 2019
Published online: 11 Dec 2020 *