Are rational expectations equilibria with private information eductively stable?

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Are rational expectations equilibria with private information eductively stable? / Heinemann, M.
In: Journal of Economics, Vol. 82, No. 2, 01.06.2004, p. 169-194.

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@article{8a7f7b945d294ed68e2bbf3cdeba1216,
title = "Are rational expectations equilibria with private information eductively stable?",
abstract = "The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.",
keywords = "Economics, rational expectations, private information, eductive stability",
author = "M Heinemann",
year = "2004",
month = jun,
day = "1",
doi = "10.1007/s00712-003-0046-6",
language = "English",
volume = "82",
pages = "169--194",
journal = "Journal of Economics",
issn = "0931-8658",
publisher = "Springer",
number = "2",

}

RIS

TY - JOUR

T1 - Are rational expectations equilibria with private information eductively stable?

AU - Heinemann, M

PY - 2004/6/1

Y1 - 2004/6/1

N2 - The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.

AB - The paper derives conditions for eductive stability of rational expectations equilibria in simple linear economic models with private information. Following Guesnerie (1992; 2002), the concept of eductive stability is used. It is shown that even in a private information setting, rational expectations equilibria might be justified as a result of mental process of reasoning of the agents. The paper considers an equilibrium concept, where the agents are unable to condition their forecasts on the actual market price. It is shown that eductive stability in this case requires that a condition is satisfied that is also relevant in the symmetric information case. This condition is compared to the respective stability condition that must hold if agents are able to use the current market price as an additional source of information. It turns out that the conditions for eductive stability that emerge under both equilibrium concepts differ.

KW - Economics

KW - rational expectations

KW - private information

KW - eductive stability

U2 - 10.1007/s00712-003-0046-6

DO - 10.1007/s00712-003-0046-6

M3 - Journal articles

VL - 82

SP - 169

EP - 194

JO - Journal of Economics

JF - Journal of Economics

SN - 0931-8658

IS - 2

ER -