A finite set of equilibria for the indeterminacy of linear rational expectations models

Jean-Bernard Chatelain (1, 2) , Kirsten Ralf (3)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics
3 Ecole Supérieure du Commerce Extérieur - ESCE

This paper demonstates the existence of a finite set of equilibria in the case of the indeterminacy of linear rational expectations models. The number of equilibria corresponds to the number of ways to select n eigenvectors among a larger set of eigenvectors related to stable eigenvalues. A finite set of equilibria is a substitute to continuous (uncountable) sets of sunspots equilibria, when the number of independent eigenvectors for each stable eigenvalue is equal to one.

Keywords: linear rational expectations models; indeterminacy; multiple equilibria; Riccati equation; sunspots

Domains: Economics and Finance

Jean-Bernard Chatelain, Kirsten Ralf. A finite set of equilibria for the indeterminacy of linear rational expectations models. 2014. ⟨halshs-01053484v1⟩