Staff Report 196

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Comments on Farmer and Guo's "The Econometrics of Indeterminacy: An Applied Study"

S. Rao Aiyagari

Published August 1, 1995

I argue that Farmer and Guo's one-sector real business cycle model with indeterminacy and sunspots fails empirically and that its failure is inherent in the logic of the model taken together with some simple labor market facts.

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Narayana Kocherlakota