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Full Information Estimation and Stochastic Simulation of Models with Rational Expectations

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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.

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File URL: http://cowles.econ.yale.edu/P/cd/d09a/d0921.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 921.

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Length: 22 pages
Date of creation: Aug 1989
Date of revision:
Publication status: Published in Journal of Applied Econometrics (1990), 5: 381-392
Handle: RePEc:cwl:cwldpp:921

Note: CFP 764.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Stochastic simulation; rational expectations; maximum likelihood; macroeconomic model;

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References

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  1. 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.
  2. John B. Taylor, 1990. "Policy Analysis With a Multicountry Model," NBER Working Papers 2881, National Bureau of Economic Research, Inc.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  4. De Long, James Bradford & Summers, Lawrence H, 1986. "Is Increased Price Flexibility Stabilizing?," American Economic Review, American Economic Association, vol. 76(5), pages 1031-44, December.
  5. 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.
  6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  7. 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.
  8. 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.
  9. 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.
  10. King, Stephen R, 1988. "Is Increased Price Flexibility Stabilizing? Comment," American Economic Review, American Economic Association, vol. 78(1), pages 0234, March.
  11. 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.
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Citations

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Cited by:
  1. Sergio J. Rey & Guy R. West & Mark V. Janikas, 2004. "Uncertainty in Integrated Regional Models," Urban/Regional 0401001, EconWPA.
  2. Ray Fair, 2001. "Optimal Control and Stochastic Simulation of Large Nonlinear Models with Rational Expectations," Yale School of Management Working Papers ysm202, Yale School of Management, revised 24 Sep 2001.
  3. Ray C. Fair, 2000. "Estimated, Calibrated, and Optimal Interest Rate Rules," Cowles Foundation Discussion Papers 1258, Cowles Foundation for Research in Economics, Yale University.
  4. 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.
  5. Barrell, Ray & Pina, Alvaro M., 2004. "How important are automatic stabilisers in Europe? A stochastic simulation assessment," Economic Modelling, Elsevier, vol. 21(1), pages 1-35, January.
  6. Le, Vo Phuong Mai & Minford, Patrick, 2007. "Optimising indexation arrangements under Calvo contracts and their implications for monetary policy," Cardiff Economics Working Papers E2007/7, Cardiff University, Cardiff Business School, Economics Section.
  7. Ray Fair, 2008. "Estimating Exchange Rate Equations Using Estimated Expectations," Yale School of Management Working Papers amz2499, Yale School of Management.
  8. Fair, Ray C., 2008. "Testing price equations," European Economic Review, Elsevier, vol. 52(8), pages 1424-1437, November.
  9. Pesaran, M.H. & Samiei, H., 1993. "Limited-Dependaent Rational Expectations Models with Future Expectations," Cambridge Working Papers in Economics 9321, Faculty of Economics, University of Cambridge.
  10. Dury, K. & Pina, A.M., 2000. "Fiscal Policy in EMU: Simulating the Operation of the Stability Pact," Economics Working Papers eco2000/3, European University Institute.
  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. Fair, Ray C., 2014. "How might a central bank report uncertainty?," Economics Discussion Papers 2014-25, Kiel Institute for the World Economy.
  13. Ray Fair, 2008. "Estimating Term Structure Equations Using Macroeconomic Variables," Yale School of Management Working Papers amz2387, Yale School of Management.
  14. Ray C. Fair, . "How Might a Central Bank Report Uncertainty?," Cowles Foundation Discussion Papers 1943, Cowles Foundation for Research in Economics, Yale University.
  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.

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