Right! the silly conclusions derived from the RATEX assumption are really derived from ancillary assumptions (no non-covexities, continuous market-clearing, full employment, etc.)
But if there are multiple equilibria, how can RATEX work? How can have perfect foresight "on average" (based on a normal distribution around an equilibrium) if there is more than one equilibrium? It seems to me that the only way it would work is if we limit the "rational" person's views to only the neighborhood around a single equilibrium. Julio asked the question about how supply and demand equilibrium is attained and I answered by giving the standard adjustment equations. I never gave an equation for how a RATEX equilibrium is attained. The only one I can think of is one involving learning from experience (to develop a model of the economy from which to derive "rational" expectations). But that's adaptive expectations. On Thu, Mar 6, 2008 at 6:57 AM, [EMAIL PROTECTED] <[EMAIL PROTECTED]> wrote: > Jim: I think that RATEX is important precisely because it is a > potent generator of multiple equilibria, given that the world > we're trying to model is evidently a world characterized by such > multiplicity. The early proponents of RATEX - Lucas, Sargent, > Wallace and such - suppressed this part of the ratex message by > ruling out, in the footnotes, any examination of the > "non-fundamental" solutions. But the work of people like > Azariadis, Farmer and Karl Shell, on "sunspot" equilibria soon > put this aspect of RATEX front and center. Sargent in fact at > one point, alarmed at the bubble possibilities in RATEX models of > infinitely-lived asset markets, reverted to models of adaptive > learning to insure uniqueness. > > > Kevin Quinn > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
