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On Chaotic Consistent Expectations Equilibria

On Chaotic Consistent Expectations Equilibria Abstract The notion of c̱onsistent e̱xpectations e̱quilibria (CEE) as propagated by Hommes/Sorger (1998) is reviewed. Focusing on their example of a chaotic CEE constructed in the context of a cobweb model, it is argued that such an equilibrium is a temporary one. Assuming that an agent-modeled as an individual, versatile in applying the basic tools of linear time-series econometrics-has learned the CEE, I analyze the duration of the time period over which the agent maintains her/his beliefs concerning the perceived law of motion (AR(1)). The analysis based on numerical simulations indicates that the use of techniques rooted in the linear paradigm is sufficient to generate convincing evidence against the underlying perceived law of motion. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Analyse & Kritik de Gruyter

On Chaotic Consistent Expectations Equilibria

Jungeilges, J. A.
Analyse & Kritik , Volume 29 (2) – Nov 1, 2007
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Publisher
de Gruyter
Copyright
Copyright © 2007 by the
ISSN
0171-5860
eISSN
2365-9858
DOI
10.1515/auk-2007-0210
Publisher site
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Abstract

Abstract The notion of c̱onsistent e̱xpectations e̱quilibria (CEE) as propagated by Hommes/Sorger (1998) is reviewed. Focusing on their example of a chaotic CEE constructed in the context of a cobweb model, it is argued that such an equilibrium is a temporary one. Assuming that an agent-modeled as an individual, versatile in applying the basic tools of linear time-series econometrics-has learned the CEE, I analyze the duration of the time period over which the agent maintains her/his beliefs concerning the perceived law of motion (AR(1)). The analysis based on numerical simulations indicates that the use of techniques rooted in the linear paradigm is sufficient to generate convincing evidence against the underlying perceived law of motion.

Journal

Analyse & Kritik – de Gruyter

Published: Nov 1, 2007

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