On multiple equilibria and the rational expectations hypothesis
Résumé
This paper analyzes through a simple two-period model the fact that, if some agents hold inside money intertemporally, the second-period ldquonormalizationrdquo matters. Thus, there are several equilibria of the second-period economy, indexed by the level of inflation. A concept of equilibrium acknowledging this fact, and requiring that agents put some weight on any of the possible second-period equilibrium price vectors is developed. Such an equilibrium is shown to exist, and is illustrated by an example.