Observability and Equilibrium Selection
نویسندگان
چکیده
We explore the connection between shock observability and equilibrium. When aggregate shocks are unobserved the rational expectations solutions remain unchanged if contemporaneous aggregate outcomes are observable, but their stability under adaptive learning must be reconsidered. We obtain learning stability conditions and show that, provided there is not large positive expectational feedback, the minimum state variable solution is robustly stable under learning, while the nonfundamental solution is never robustly stable. Using agent-level micro-founded settings we apply our results to overlapping generations and New Keynesian models, and we address the uniqueness concerns raised in Cochrane (2011). JEL Classifications: E31; E32; E52; D84; D83
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