Year: 2003
Type: preprint
Abstract: A number of authors have attempted to test whether the U.S. economy is in a determinate or an indeterminate equilibrium. We argue that to answer this question, one must impose a priori restrictions on lag length that cannot be tested. We provide examples of two economic models. Model 1 displays an indeterminate equilibrium, driven by sunspots. Model 2 displays a determinate equilibrium driven by fundamentals. Given assumptions about the shock distribution of model 2, it is possible to find a distribution of sunspot shocks that drive model 1 such that the two models are observationally equivalent. JEL Classification: C39, C62, D51
Authors: Andreas Beyer, Roger E. A. Farmer
Language: English
Topic: Economic theories and models
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122995567