Expectations, forecasting, and perfect foresight - A dynamical systems approach

The paper studies the nature of expectations formation rules for determinis tic economic laws with an expectations feedback within the framework of dyn amical systems theory. In such systems, the expectations formation rules, c alled predictors, have a dominant influence. The concept of a perfect predi ctor, which generates perfect-foresight orbits, is proposed and analyzed. N ecessary and sufficient conditions are given for which local as well as glo bal perfect foresight is possible. The concept is illustrated for the gener al linear model as well as for models of the cobweb type. For the standard overlapping generations model of economic growth, the existence of perfect predictions depends strongly on the savings behavior of the agents and on t he technology.