Eductive stability in real business cycle models

Pre-print, Working paper: We re-examine issues of coordination in the standard RBC model. Can the unique rational expectations equilibrium be “educed” by rational agents who contemplate the possibility of small deviations from equilibrium? Surprisingly, we find that coordination along this line cannot be expected. Rational agents anticipating small but possibly persistent deviations have to face the existence of retroactions that necessarily invalidate any initial tentative “common knowledge” of the future. This "impossibility" theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework.

Author(s)

George W. Evans, Roger Guesnerie, Bruce Mcgough

Date of publication
  • 2010
Keywords JEL
E1 E30 E32 E6
Internal reference
  • PSE Working Papers n°2010-47
Version
  • 1