On the preservation of deterministic cycles when some agents perceive them to be random fluctuations

George W. Evans; Seppo Honkapohja; Thomas J. Sargent

doi:10.1016/0165-1889(93)90011-G

On the preservation of deterministic cycles when some agents perceive them to be random fluctuations

George W. Evans, Seppo Honkapohja, Thomas J. Sargent

Research output: Contribution to journal › Article › peer-review

Abstract

Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.

Original language	English (US)
Pages (from-to)	705-721
Number of pages	17
Journal	Journal of Economic Dynamics and Control
Volume	17
Issue number	5-6
DOIs	https://doi.org/10.1016/0165-1889(93)90011-G
State	Published - 1993

ASJC Scopus subject areas

Economics and Econometrics
Control and Optimization
Applied Mathematics

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10.1016/0165-1889(93)90011-G

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title = "On the preservation of deterministic cycles when some agents perceive them to be random fluctuations",

abstract = "Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.",

author = "Evans, {George W.} and Seppo Honkapohja and Sargent, {Thomas J.}",

note = "Funding Information: Helsinki, Finland. * Honkapohja{\textquoteright}s work was supported by a grant from the Academy of Finland. Sargent{\textquoteright}s work on this paper was supported by a grant from the National Science Foundation to the National Bureau of Economic Research. Part of this research was completed while Sargent was a visitor at STICERD at the London School of Economics. Evans and Honkapohja also acknowledge partial support from the SPES Program of the EC. For helpful criticisms of earlier drafts we thank Michele Boldrin and an anonymous referee. Copyright: Copyright 2014 Elsevier B.V., All rights reserved.",

year = "1993",

doi = "10.1016/0165-1889(93)90011-G",

language = "English (US)",

volume = "17",

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T1 - On the preservation of deterministic cycles when some agents perceive them to be random fluctuations

AU - Evans, George W.

AU - Honkapohja, Seppo

AU - Sargent, Thomas J.

N1 - Funding Information: Helsinki, Finland. * Honkapohja’s work was supported by a grant from the Academy of Finland. Sargent’s work on this paper was supported by a grant from the National Science Foundation to the National Bureau of Economic Research. Part of this research was completed while Sargent was a visitor at STICERD at the London School of Economics. Evans and Honkapohja also acknowledge partial support from the SPES Program of the EC. For helpful criticisms of earlier drafts we thank Michele Boldrin and an anonymous referee. Copyright: Copyright 2014 Elsevier B.V., All rights reserved.

PY - 1993

Y1 - 1993

N2 - Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.

AB - Some recent equilibrium models give rise to complex but deterministic fluctuations. We modify the hypothesis of universal perfect foresight by injecting into the economy a nonnegligible fraction of less informed agents who optimize their expected utility with respect to the statistical distribution of prices in the deterministic dynamics. For the standard overlapping generations model with money (the 'Samuelson' case) it is proved that if the fraction of consumers with limited knowledge is sufficiently high, then all equilibrium cycles of period k ≥ 2 disappear. The global properties of the case of 2-cycles are studied in detail. A brief analysis of the 'classical' case is also given.

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On the preservation of deterministic cycles when some agents perceive them to be random fluctuations

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