Working Paper/Document de travail 2013-14 Are Sunspots Learnable? An Experimental Investigation in a Simple General-Equilibrium Model by Jasmina Arifovic, George Evans and Olena Kostyshyna Bank of Canada Working Paper 2013-14 May 2013 Are Sunspots Learnable? An Experimental Investigation in a Simple General-Equilibrium Model by Jasmina Arifovic,1 George Evans2 and Olena Kostyshyna3 1Simon Fraser University 2University of Oregon and University of St. Andrews 3Canadian Economic Analysis Department Bank of Canada Ottawa, Ontario, Canada K1A 0G9
[email protected] Bank of Canada working papers are theoretical or empirical works-in-progress on subjects in economics and finance. The views expressed in this paper are those of the authors. No responsibility for them should be attributed to the Bank of Canada. 2 ISSN 1701-9397 © 2013 Bank of Canada Acknowledgements We would like to thank Heng Sok and Brian Merlob for helpful research assistance. We would also like to thank Luba Petersen and Gabriele Camera for useful feedback, and participants at the Experimental Macroeconomic Conference, Pompeu Fabra, May 2011, as well as seminar participants at the Bank of Canada, May 2012, University of California, Irvine, September, 2012, and ESA Meetings, Tucson, AZ, November 2012 for helpful comments. ii Abstract We conduct experiments with human subjects in a model with a positive production externality in which productivity is a non-decreasing function of the average level of employment of other firms. The model has three steady states: the low and high steady states are expectationally stable (E-stable), and thus locally stable under learning, while the middle steady state is not E-stable.