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Title: Persistent dynamics in (in)determinate equilibrium rational expectations models

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.

DOI: 10.1504/IJCEE.2021.10033208

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 *

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