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INSTABILITY OF SUNSPOT EQUILIBRIA IN REAL BUSINESS CYCLE MODELS UNDER INFINITE HORIZON LEARNING
Published online by Cambridge University Press: 29 August 2017
Abstract
This paper examines the stability of sunspot equilibria in one-sector RBC models under infinite horizon learning. We present general conditions under which the reduced-form model can possess E-stable sunspot equilibria and apply these conditions to three prominent one-sector RBC models. We find that the rational expectations sunspot equilibria are generally unstable under learning.
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