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Rational Expectations for Large Models: A Practical Algorithm and a Policy Application

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Author Info
Peter B. Dixon
K.R. Pearson
Mark R. Picton
Maureen T. Rimmer

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Abstract

This paper describes a practical and conceptually simple iterative method for solving large dynamic CGE models under rational expectations. Details are given for the MONASH model of Australia but the general approach could be applied to a wide range of dynamic models. The method has been automated in the RunMONASH Windows software. This software provided a natural starting point for developing an automated procedure for conducting policy analysis under rational expectations because it already performed this function for static expectations. RunMONASH was also convenient because it incorporates comprehensive user-friendly data- and solution-interrogation facilities. We provide an illustrative application in which MONASH results obtained under rational expectations for the effects of motor vehicle tariff cuts are compared with results obtained under static expectations.

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File URL: http://www.monash.edu.au/policy/ftp/workpapr/ip-81.pdf
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Publisher Info
Paper provided by Monash University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number ip-81.

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Date of creation: May 2002
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Handle: RePEc:cop:wpaper:ip-81

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Related research
Keywords: classifications: rational expectations algorithm; dynamic general equilibrium; tariffs; investment modelling;

Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

References listed on IDEAS
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  1. Fair, Ray C, 1979. "An Analysis of a Macro-Econometric Model with Rational Expectations in the Bond and Stock Markets," American Economic Review, American Economic Association, vol. 69(4), pages 539-52, September. [Downloadable!] (restricted)
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  2. Fair, Ray C & Taylor, John B, 1983. "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 51(4), pages 1169-85, July. [Downloadable!] (restricted)
    Other versions:
  3. Harrison, W Jill & Pearson, K R, 1996. "Computing Solutions for Large General Equilibrium Models Using GEMPACK," Computational Economics, Springer, vol. 9(2), pages 83-127, May.
    Other versions:
  4. David Lipton & James M. Poterba & Jeffrey Sachs & Lawrence H. Summers, 1983. "Multiple Shooting in Rational Expectations Models," NBER Technical Working Papers 0003, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Malakellis, Michael, 1998. "Should Tariff Reductions Be Announced? An Intertemporal Computable General Equilibrium Analysis," The Economic Record, The Economic Society of Australia, vol. 74(225), pages 121-38, June.
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(explanations, 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.)

  1. Jill Harrison & Glyn Wittwer, 2003. "RunMONASH: Automating A Dynamic, Recursive CGE Model," Centre of Policy Studies/IMPACT Centre Working Papers c14, Monash University, Centre of Policy Studies/IMPACT Centre. [Downloadable!]
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