Coordination on saddle-path solutions: the eductive viewpoint - linear multivariate models

@article{Evans2001CoordinationOS,
  title={Coordination on saddle-path solutions: the eductive viewpoint - linear multivariate models},
  author={George W. Evans and Roger Guesnerie},
  journal={J. Economic Theory},
  year={2001},
  volume={124},
  pages={202-229}
}
We examine local strong rationality (LSR) in multivariate models with both forward-looking expectations and predetermined variables. Given hypothetical common knowledge restrictions that the dynamics will be close to those of a specified minimal state variable solution, we obtain eductive stability conditions for the solution to be LSR. In the saddlepoint stable case the saddle-path solution is LSR provided the model is structurally homogeneous across agents. However, the eductive stability… CONTINUE READING
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