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A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
      
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Walk on the Wild Side: Temporarily Unstable Paths and Multiplicative Sunspots, American Economic Review 5 (2019). Ascari, Guido; Bonomolo, Paolo; Lopes, Hedibert F.


Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
Ascari Guido / Research
All authors as text Ascari, Guido; Bonomolo, Paolo; Lopes, Hedibert F. 
Number of authors
Status Published
Year of publication 2019 
Date 15.05.2019 
Name of article Walk on the Wild Side: Temporarily Unstable Paths and Multiplicative Sunspots 
Name of journal American Economic Review
Volume of issue 109 
Number of issue
Pages 1805-1842 
Abstract We propose a generalization of the rational expectations framework to allow for temporarily unstable paths. Our approach introduces multiplicative sunspot shocks and it yields drifting parameters and stochastic volatility. Then, we provide an econometric strategy to estimate this generalized model on the data. The methodology allows the data to choose between different possible alternatives: determinacy, indeterminacy, and temporary instability. We apply our methodology to US inflation dynamics in the 1970s through the lens of a simple New Keynesian model. When temporarily unstable paths are allowed, the data unambiguously select them to explain the stagflation period in the 1970s.
Free text descriptor in Finnish odotukset; hinnat; inflaatio; mallit; Yhdysvallat 
JEL-codes D84; E12; E31; E32; E52 
ISSN / e-ISSN 0002-8282 
auki Internet addresses
Open Access Not known