Causality, Structure And The Uniqueness Of Rational Expectations Equilibria
AbstractConsider a rational expectations (RE) model that includes a relationship between variables x t and z t+1 . To be considered structural and potentially useful as a guide to actual behavior, this model must specify whether x t is influenced by the expectation at t of z t+1 or, alternatively, that z t+1 is directly influenced (via some inertial mechanism) by x t (i.e., that z t is influenced by x t-1 ). These are quite different phenomena. Here it is shown that, for a very broad class of multivariate linear RE models, distinct causal specifications involving both expectational and inertial influences will be uniquely associated with distinct solutionsâwhich will result operationally from different specifications concerning which of the modelâs variables are predetermined. It follows that for a given structure, and with a natural continuity assumption, there is only one RE solution that is fully consistent with the modelâs specification. Furthermore, this solution does not involve âsunspotâ phenomena.
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Volume (Year): 79 (2011)
Issue (Month): s1 (06)
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Other versions of this item:
- Bennett T. McCallum, 2009. "Causality, Structure, and the Uniqueness of Rational Expectations Equilibria," NBER Working Papers 15234, National Bureau of Economic Research, Inc.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
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