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A Theorem on Expectations and the Stability of Equilibrium
Alain C. Enthoven
Kenneth J. Arrow
Abstract
The relationship between extrapolative expectations and dynamic stability is studied in the context of a multiple market system. Metzler's theorem on the Hicksian stability conditions is extended to include a simple expectations function. It is shown that a stable dynamic system can absorb the effects of some extrapolation of price movements and remain stable.
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