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Multiple Shooting in Rational Expectations Models

Author

Listed:
  • David Lipton
  • James M. Poterba
  • Jeffrey Sachs
  • Lawrence H. Summers

Abstract

This note describes an algorithm for the solution of rational expectations models with saddlepoint stability properties. The algorithm is based on the method of multiple shooting, which is widely used to solve mathematically similar problems in the physical sciences. Potential applications to economics include models of capital accumulation and valuation, money arid growth, exchange rate determination, and macroeconomic activity. In general, whenever an asset price incorporates information about the future path of key variables, solution algorithms of the type we consider are applicable.

Suggested Citation

  • 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.
    • Handle: RePEc:nbr:nberte:0003
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    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 539-552, September.
    2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    3. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-1048, November.
    4. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
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    Citations

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    Cited by:

    1. Gilles Oudiz & Jeffrey Sachs, 1984. "International Policy Coordination in Dynamic Macroeconomic Models," NBER Working Papers 1417, National Bureau of Economic Research, Inc.
    2. James M. Poterba, 1980. "Inflation, Income Taxes, and Owner-Occupied Housing," NBER Working Papers 0553, National Bureau of Economic Research, Inc.
    3. Peter B. Dixon & K.R. Pearson & Mark R. Picton & Maureen T. Rimmer, 2002. "Rational Expectations for Large Models: A Practical Algorithm and a Policy Application," Centre of Policy Studies/IMPACT Centre Working Papers ip-81, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Michael A. Kouparitsas, 1997. "Why do countries pursue bilateral trade agreements: a case study of North America," Working Paper Series, Macroeconomic Issues WP-97-20, Federal Reserve Bank of Chicago.
    5. Kehoe, Timothy J. & Levine, David K., 1990. "The economics of indeterminacy in overlapping generations models," Journal of Public Economics, Elsevier, vol. 42(2), pages 219-243, July.
    6. McKibbin, Warwick & Sachs, Jeffrey, 1985. "Macroeconomic Policies in the OECD and LDC External Adjustment," CEPR Discussion Papers 56, C.E.P.R. Discussion Papers.
    7. Lawrence H. Summers, 1985. "The Asset Price Approach to the Analysis of Capital Income Taxation," Palgrave Macmillan Books, in: George R. Feiwel (ed.), Issues in Contemporary Macroeconomics and Distribution, chapter 19, pages 429-443, Palgrave Macmillan.
    8. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    9. Jeffrey D. Sachs, 1980. "Energy and Growth under Flexible Exchange Rates: A Simulation Study," NBER Working Papers 0582, National Bureau of Economic Research, Inc.
    10. Laurence J. Kotlikoff & Edward E. Leamer & Jeffrey Sachs, 1981. "The International Economics of Transitional Growth: The Case of the United States," NBER Working Papers 0773, National Bureau of Economic Research, Inc.

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