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- Title
Determinacy of equilibrium under alternative policy regimes.
- Authors
Woodford, Michael
- Abstract
The article focuses on the determinancy of equilibrium under alternative policy regimes. It has been known since the mid-1970's that intertemporal general equilibrium models often exhibit indeterminacy of equilibrium, that there may be not merely multiple equilibria, but even a continuum of nearby equilibria, so that equilibrium prices and quantities are not even locally determinate. As a related phenomenon, it has come to be realized that is often consistent with rational expectations equilibrium for prices and quantities to change according to the realization of random states that do not correspond to any difference in economic fundamentals such as preferences, endowments, tax rates and so on. These phenomena were first thoroughly analyzed in the context of overlapping generations models, but they are now known to occur in a wide variety of types of intertemporal equilibrium models, including models with infinite-lived agents in which there are externalities, imperfect competition or incomplete financial markets
- Subjects
ECONOMIC equilibrium; PRICES; RATIONAL expectations (Economic theory); ECONOMIC forecasting; EXTERNALITIES; TAX rates; FINANCIAL markets
- Publication
Economic Theory, 1994, Vol 4, Issue 3, p323
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/BF01215375