| This dissertation studies macroeconomic dynamics in the presence of equilibrium indeterminacy. Chapter 2 investigates the condition for determinacy in a small open economy model with a monetary policy that reacts to the output gap, inflation and, particularly, nominal exchange rate depreciation. I find that the coefficient on exchange rate depreciation in the policy rule plays a crucial role for determinacy. I also compare the dynamic behavior of the model under determinacy and indeterminacy. In light of solution multiplicity under indeterminacy, two particular solutions are presented. It is demonstrated that the impulse responses under indeterminacy are dramatically changed, depending on selection of the specific equilibrium.; Chapter 3 presents an equilibrium selection procedure for linear rational expectations models under indeterminacy. I apply the learning approach to selection of a particular equilibrium from the infinite number of solutions. In the procedure, a specific equilibrium is chosen such that the perceived law of motion for agents with adaptive learning rules can converge to the particular solution. I find that expectational stability is achieved only under empirically implausible parameter settings if the agents perceive fundamental shocks completely. However, if they misperceive the fundamentals in some degree, the stability is attainable under plausible parameters. It is also demonstrated that dynamics implied by the selected solution is different from that under the assumption often made in the literature.; Chapter 4 investigates sources of asset price fluctuation and a long-lasting recession in Japan using an estimated financial accelerator model. For explicit treatment of expectational beliefs, the model is analyzed over the parameter space where the equilibrium can be indeterminate. It is shown that indeterminacy arises if the financial accelerator effect is sufficiently large. According to the Bayesian estimation results, Japan's economy was consistent with indeterminacy, and hence sunspot shocks affected the equilibrium dynamics. But the contribution of sunspots to asset price volatility was low. Rather, net worth and cost shocks drove the asset price fluctuation. I do find, however, that sunspots substantially affected capital investment.; Keywords.{09}Indeterminacy, Sunspots, Learning, Bayesian Analysis. |
