CONSISTENT EXPECTATIONS EQUILIBRIA

We consider a class of nonlinear dynamic economic models in which the actual realizations of a certain variable (e.g., price) depend on the agents' expectations about this variable. We define a consistent expec tations equilibrium (CEE) by the property that the sample average and the sample autocorrelations of the realizations of the actual law of m otion equal the average and the autocorrelations of the perceived law of motion. Along a CEE agent's expectations are thus self-fulfilling i n terms of the observable sample average and sample autocorrelations. Restricting ourselves to the case in which beliefs are described by an AR(1) process, we study existence and stability of three different ty pes of GEE: steady-state, two-cycle, and chaotic. We illustrate how th ese equilibria can emerge in the nonlinear cobweb model. Learning dyna mics based on sample average and sample autocorrelations are introduce d and stability of CEE under this learning process is investigated.