The dynamics of Expectations

Abstract

In this survey we describe the dynamics generated by expectation revisions in intertemporal economic models. Local uniqueness of equilibrium (like stationary states, cycles or sunspot equilibrium) is shown to be a necessary and sufficient condition to obtain stability for the dynamics of expectation revisions. For that reason, such equilibria are called Expectational Stable (E-Stable). Finally, we show how a stationary state which is E-Stable may exhibit a two period cycle bifurcation which is also E-Stable.