Year: 1982
Type: report
Abstract: Knife-edge stability is a common property of dynamic monetary models assuming perfect foresight or rational expectations.These models can be closed with the assumption that the economy's equilibrium lies on the unique convergent path (the saddlepath).While this empirically plausible assumption yields sensible results, aggregative models are not specified in sufficient detail to allow one to prove that the saddlepath is the unique equilibrium path.Brock (1974Brock ( , 1975) ) and Stock and Scheinkman (1980) have advanced models in which individual preferences are more fully specified and in which, under certain conditions.the uniqueness and stability of equilibrium can be rigorously demonstrated.This paper shows that these uniqueness conditions are economically unreasonable.Therefore, the question these maximizing models address remains unresolved.
DOI: 10.3386/w0855
Authors: Maurice Obstfeld, Kenneth Rogoff
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
Funder: National Science Foundation
OpenAlex ID: W1980978596