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Full Information Estimation and Stochastic Simulation of Models with Rational Expectations

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  • Fair, Ray C
  • Taylor, John B

Abstract

A computationally feasible method for the full information maximum-likelihood estimation of models with rational expectations is described in this paper. The stochastic simulation of such models is also described. The methods discussed in this paper should open the way for many more tests of the rational expectations hypothesis within macroeconomic models. Copyright 1990 by John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 5 (1990)
Issue (Month): 4 (Oct.-Dec.)
Pages: 381-92

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Handle: RePEc:jae:japmet:v:5:y:1990:i:4:p:381-92

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References

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  1. Ray C. Fair & John B. Taylor, 1980. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Cowles Foundation Discussion Papers 564, Cowles Foundation for Research in Economics, Yale University.
  2. Fair, Ray C, 1993. "Testing the Rational Expectations Hypothesis in Macroeconometric Models," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 169-90, April.
  3. Taylor, John B & Uhlig, Harald, 1990. "Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 1-17, January.
  4. J. Bradford De Long & Lawrence H. Summers, 1985. "Is Increased Price Flexibility Stabilizing?," NBER Working Papers 1686, National Bureau of Economic Research, Inc.
  5. Taylor, John B., 1980. "Output and price stability: An international comparison," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 109-132, May.
  6. Fair, Ray C. & Parke, William R., 1980. "Full-information estimates of a nonlinear macroeconometric model," Journal of Econometrics, Elsevier, vol. 13(3), pages 269-291, August.
  7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  8. King, Stephen R, 1988. "Is Increased Price Flexibility Stabilizing? Comment," American Economic Review, American Economic Association, vol. 78(1), pages 0234, March.
  9. Parke, William R, 1982. "An Algorithm for FIML and 3SLS Estimation of Large Nonlinear Models," Econometrica, Econometric Society, vol. 50(1), pages 81-95, January.
  10. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  11. John B. Taylor, 1990. "Policy Analysis With a Multicountry Model," NBER Working Papers 2881, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Ray Fair, 2003. "Optimal Control and Stochastic Simulation of Large Nonlinear Models with Rational Expectations," Computational Economics, Society for Computational Economics, vol. 21(3), pages 245-256, June.
  2. Barrell, Ray & Dury, Karen & Hurst, Ian, 2003. "International monetary policy coordination: an evaluation using a large econometric model," Economic Modelling, Elsevier, vol. 20(3), pages 507-527, May.
  3. Fair, Ray C., 2014. "How might a central bank report uncertainty?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 8(27), pages 1-22.
  4. Sergio J. Rey & Guy R. West & Mark V. Janikas, 2004. "Uncertainty in Integrated Regional Models," Urban/Regional 0401001, EconWPA.
  5. Fair, Ray C., 2014. "How might a central bank report uncertainty?," Economics Discussion Papers 2014-25, Kiel Institute for the World Economy.
  6. Fair, Ray C., 2008. "Testing price equations," European Economic Review, Elsevier, vol. 52(8), pages 1424-1437, November.
  7. Barrell, R. & Pina, A.M., 2000. "How Important are Automatic Stabilizers in Europe? A Stochastic Simulation Assessment," Economics Working Papers eco2000/2, European University Institute.
  8. Dury, Karen & Pina, Alvaro M., 2003. "Fiscal policy in EMU: simulating the operation of the Stability Pact," Journal of Policy Modeling, Elsevier, vol. 25(2), pages 179-206, February.
  9. Ray C. Fair, . "How Might a Central Bank Report Uncertainty?," Cowles Foundation Discussion Papers 1943, Cowles Foundation for Research in Economics, Yale University.
  10. Le, Vo Phuong Mai & Minford, Patrick, 2007. "Optimising Indexation Arrangements under Calvo Contracts and their Implications for Monetary Policy," CEPR Discussion Papers 6325, C.E.P.R. Discussion Papers.
  11. Yue Ma & Guy Meredith & Matthew S. Yiu, 2002. "A Currency Board Model of Hong Kong," Working Papers 012002, Hong Kong Institute for Monetary Research.
  12. Pesaran, M. Hashem & Samiei, Hossein, 1995. "Limited-dependent rational expectations models with future expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1325-1353, November.
  13. Ray Fair, 2008. "Estimating Exchange Rate Equations Using Estimated Expectations," Yale School of Management Working Papers amz2499, Yale School of Management.
  14. Ray Fair, 2008. "Estimating Term Structure Equations Using Macroeconomic Variables," Yale School of Management Working Papers amz2387, Yale School of Management.
  15. Nerlove, Marc & Fornari, Ilaria, 1998. "Quasi-rational expectations, an alternative to fully rational expectations: An application to US beef cattle supply," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 129-161.
  16. Ray C. Fair, 2000. "Estimated, Calibrated, and Optimal Interest Rate Rules," Cowles Foundation Discussion Papers 1258, Cowles Foundation for Research in Economics, Yale University.

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