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Walk on the wild side: temporarily unstable paths and multiplicative sunspots

Abstract:

We propose a generalization of the rational expectations frame- work to allow for temporarily unstable paths. Our approach intro- duces multiplicative sunspot shocks and it yields drifting param- eters and stochastic volatility. Then, we provide an economet- ric strategy to estimate this generalized model on the data. The methodology allows the data to choose between different possible alternatives: determinacy, indeterminacy and temporary instabil- ity. We apply our methodology to US in atio...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Publisher's version

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Publisher copy:
10.1257/aer.20160576

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Institution:
University of Oxford
Division:
Social Sciences Division
Department:
Economics
Oxford college:
Somerville College
Role:
Author
ORCID:
0000-0002-5037-1964
Publisher:
American Economic Association Publisher's website
Journal:
American Economic Review Journal website
Volume:
109
Issue:
5
Pages:
1805-1842
Publication date:
2019-05-01
Acceptance date:
2018-12-04
DOI:
ISSN:
0002-8282
Pubs id:
pubs:954390
URN:
uri:f89a499f-4115-46a3-8cbc-ac2e136bc5c6
UUID:
uuid:f89a499f-4115-46a3-8cbc-ac2e136bc5c6
Local pid:
pubs:954390

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