Economics, Econometrics and Finance
4 years ago

Indeterminate equilibria in economic models show lower time series persistence.

International Journal of Computational Economics and Econometrics
Persistent dynamics in (in)determinate equilibrium rational expectations models
Marco M. Sorge

Paper Summary

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Equilibrium indeterminacy in economic models can lead to less persistence in time series data than determinacy. A study using a simple model found that there are many indeterminate equilibria that actually show lower persistence than determinate ones. This has implications for testing for indeterminacy and making economic forecasts.