Fundamentals Versus Beliefs under Almost Common Knowledge

Modern economic growth models show that the equilibrium outcome may depend on agents' beliefs (expectations) rather than on economic fundamentals (history). In this situation, the equilibrium is indeterminate. However, if agents have "almost common knowledge" rather than common knowledge about the economic fundamentals, this indeterminacy vanishes in one of these models, under certain restrictions. In this situation, the unique competitive equilibrium can be influenced by government policy, just as in standard models.


Issue Date:
2000
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/25006
Total Pages:
32
JEL Codes:
D70; D82; D84; J60
Series Statement:
CUDARE Working Paper 871R




 Record created 2017-04-01, last modified 2017-08-24

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