Journal article
Coherence without rationality at the zero lower bound
- Abstract:
- Standard rational expectations models with an occasionally binding zero lower bound constraint either admit no solutions (incoherence) or multiple solutions (incompleteness). This paper shows that deviations from full-information rational expectations mitigate concerns about incoherence and incompleteness. Models with no rational expectations equilibria admit self-confirming equilibria involving the use of simple mis-specified forecasting models. Completeness and coherence are restored if expectations are adaptive or if agents are less forward-looking due to some information or behavioral friction. In the case of incompleteness, the E-stability criterion selects an equilibrium.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
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(Preview, Version of record, pdf, 923.4KB, Terms of use)
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- Publisher copy:
- 10.1016/j.jet.2023.105745
Authors
- Publisher:
- Elsevier
- Journal:
- Journal of Economic Theory More from this journal
- Volume:
- 214
- Article number:
- 105745
- Publication date:
- 2023-10-18
- Acceptance date:
- 2023-10-08
- DOI:
- EISSN:
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1095-7235
- ISSN:
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0022-0531
- Language:
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English
- Keywords:
- Pubs id:
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1555975
- Local pid:
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pubs:1555975
- Deposit date:
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2023-10-31
- ARK identifier:
Terms of use
- Copyright holder:
- Ascari et al
- Copyright date:
- 2023
- Rights statement:
- © 2023 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
- Licence:
- CC Attribution (CC BY)
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