Partial Current Information and Signal Extraction in a Rational Expectations Macroeconomic Model: A Computational Solution

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Partial Current Information and Signal Extraction in a Rational Expectations Macroeconomic Model: A Computational Solution

Author Info

Lungu, Laurian () (Cardiff Business School)
Matthews, Kent () (Cardiff Business School)
Minford, Patrick () (Cardiff Business School)

Abstract

Previous attempts at modelling current observed endogenous financial variables in a macroeconomic model have concentrated on only one observed endogenous variable - namely the short-term rate of interest. The solution method for dealing with more than one observed endogenous variable has thus far been computationally intractable. This paper applies a general search algorithm to a macroeconomic model with an observed interest rate and exchange rate to solve the signal extraction problem. The informational advantage of applying the signal extraction algorithm to all the current observed endogenous variables is examined in terms of the implication for policy from the misperceptions of specific macroeconomic shocks.

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Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2006/1.

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Length: 29 pages
Date of creation: Jan 2006
Date of revision:
Publication status: Published in Economic Modelling, 25(2), March 2008, pp. 255-273
Handle: RePEc:cdf:wpaper:2006/1

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Find related papers by JEL classification:
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-01-24 (All new papers)
NEP-CMP-2006-01-24 (Computational Economics)
NEP-MAC-2006-01-24 (Macroeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Pearlman, Joseph & Currie, David & Levine, Paul, 1986. "Rational expectations models with partial information," Economic Modelling, Elsevier, vol. 3(2), pages 90-105, April. [Downloadable!] (restricted)
Barro, Robert J, 1980. "A Capital Market in an Equilibrium Business Cycle Model," Econometrica, Econometric Society, vol. 48(6), pages 1393-1417, September. [Downloadable!] (restricted)
Other versions:
- Robert J. Barro, 1979. "A Capital Market In an Equilibrium Business Cycle Model," NBER Working Papers 0326, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Jean-Pascal Benassy, 2001. "The Phillips Curve and Optimal Policy in a Structural Signal Extraction Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 58-74, January. [Downloadable!] (restricted)
Matthews, K. G. P. & Minford, A. P. L. & Blackman, S. C., 1994. "An algorithm for the solution of non-linear forward rational expectations models with current partial information," Economic Modelling, Elsevier, vol. 11(3), pages 351-358, July. [Downloadable!] (restricted)
Sargent, Thomas J., 1991. "Equilibrium with signal extraction from endogenous variables," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 245-273, April. [Downloadable!] (restricted)
Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. [Downloadable!] (restricted)
Minford, A P L & Peel, D A, 1983. "Some Implications of Partial Current Information Sets in Macroeconomic Models Embodying Rational Expectations," The Manchester School of Economic & Social Studies, Blackwell Publishing, vol. 51(3), pages 235-49, September.

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