Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152711
Authors: 
Beyer, Andreas
Farmer, Roger E. A.
Year of Publication: 
2003
Series/Report no.: 
ECB Working Paper 277
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.
Subjects: 
Identification
indeterminacy
JEL: 
C39
C62
D51
Document Type: 
Working Paper

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