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Predetermined and non-predetermined variables in rational expectations models

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  • Buiter, Willem H.

Abstract

The distinctiof between predetermined and non-predetermined variables is a crucial one in rational expectations models. I consider and reject two definitions, one proposed by Blanchard and Kahn and one by Chow. Both definitions lead to possible misc1assifications. Instead I propose the following defin)tion. A variable is non-`redetermined if and only if its current value is a function of current anticipations mf future values of endogenous and/or exogenous variables. This definition focuses on the essential economic property of non-predetermined variables: unlike predetermined variables they can respond instantaneously to changes in expectations due to "news." The new definition also fits the structure of rational expectations models solution algorithms such as the one proposed by Blanchard and Kahn.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 10 (1982)
Issue (Month): 1-2 ()
Pages: 49-54

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Handle: RePEc:eee:ecolet:v:10:y:1982:i:1-2:p:49-54

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Web page: http://www.elsevier.com/locate/ecolet

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Cited by:
  1. Parello, Carmelo Pierpaolo, 2012. "Indeterminacy in a dynamic small open economy with international migration," MPRA Paper 40013, University Library of Munich, Germany.
  2. Marini, G. & Scaramozzino, P., 1989. "Monopolistic competition, expected inflation and contract length," Discussion Paper 1989-40, Tilburg University, Center for Economic Research.
  3. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
  4. Enrique Alberola & Susana G. Cervero & Humberto Lopez & Angel Ubide, 2000. "Global Equilibrium Exchange Rates: Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," Econometric Society World Congress 2000 Contributed Papers 0051, Econometric Society.

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