Econometrica: Nov 1976, Volume 44, Issue 6

Dynamics of Temporary Equilibria and Expectations

https://doi.org/0012-9682(197611)44:6<1157:DOTEAE>2.0.CO;2-3
p. 1157-1178

Gerard Fuchs, Guy Laroque

This paper is devoted to the analysis of the dynamic behavior of a sequence of temporary equilibria. The model chosen is a generalization of Samuelson's pure consumption loan model as introduced by J. M. Grandmont and G. Laroque in [5]. Three main results are given. First there is an open and dense subset @? of economies for which, near stationary equilibria and cycles, the dynamics take the standard form of an ordinary difference equation. Then conditions are obtained so that, for an economy @e in @?, stationary equilibria are locally asymptotically stable; these conditions are discussed in the case where there is only one good in addition to money. Last, it is proven that the qualitative behavior of trajectories of @e near stationary equilibria and cycles is preserved under small perturbations; i.e., one has a property of local structural stability; this is true in particular with respect to changes in the individual expectations of the agents.

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