Econometrica: Jul 1956, Volume 24, Issue 3

A Theorem on Expectations and the Stability of Equilibrium

https://doi.org/0012-9682(195607)24:3<288:ATOEAT>2.0.CO;2-S
p. 288-293

Alain C. Enthoven, Kenneth J. Arrow

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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