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The RPEs of RBCs and other DSGEs

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  • Evans, David
  • Evans, George W.
  • McGough, Bruce

Abstract

In a broad class of non-linear representative agent models, represented by a system of difference equations, we replace rational expectations with linear forecast models conditioning on a predetermined set of regressors. Within this framework, a restricted perceptions equilibrium (RPE) corresponds to a forecast rule that is optimal within that class of models. Local uniqueness of a stationary rational expectations equilibrium (REE) near the non-stochastic steady state is shown to guarantee the existence, uniqueness and E-stability of an RPE local to that steady state. A benchmark RBC model with government spending shocks illustrates the theoretical results.

Suggested Citation

  • Evans, David & Evans, George W. & McGough, Bruce, 2022. "The RPEs of RBCs and other DSGEs," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:dyncon:v:143:y:2022:i:c:s0165188922001968
    DOI: 10.1016/j.jedc.2022.104492
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    Cited by:

    1. Evans, David & Li, Jungang & McGough, Bruce, 2023. "Local rationality," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 216-236.

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    More about this item

    Keywords

    Real business cycle model; adaptive learning; E-stability; restricted perceptions;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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