On the indeterminacy of determinacy and indeterminacy

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 277

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models; Multiple Variables: Other ; Existence and Stability Conditions of Equilibrium ; Exchange and Production Economies
• Subject: Identification ; indeterminacy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beyer, Andreas ; Farmer, Roger E. A.
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/152711
• Last update: 10.03.2025, 11:44 AM CET