Abstract
The multiple equilibrium literature seeks explanations for excessive economic volatility, persistent poverty, market fads and fashions, and related macroeconomic phenomena that appear to be anomalies in standard models of rational economic behaviour. Terms like animal spirits, sunspots, irrational exuberance, indeterminacy, and bubbles describe situations of multiple equilibrium. All such ideas assert that future values of macroeconomic states cannot be predicted accurately from knowledge of economic fundamentals. This article describes four types of multiple equilibria common in macroeconomics (missing initial conditions, multiple laws of motion, multiple attractors, and non-fundamental state variables), discusses their causes and reviews what they teach us about economic policy.
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Azariadis, C. (2018). Multiple Equilibria in Macroeconomics. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2709
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2709
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