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Methods of Solution and Simulation for Dynamic Rational Expectations Models

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  • Olivier J. Blanchard

Abstract

Many methods have been proposed for the solution and simulation of medium or large size models under the assumption of rational expectations. The purpose of this paper is to present these methods, and to show how and where each can be applied. The methods fall into two groups. Methods in the first can be used to solve for perfect foresight paths in non-linear models. Methods in the second can be used in linear models, to solve either for paths or processes followed by endogenous variables. All the methods described here have been used in empirical applications and computer algorithms are available for most.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0028.

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Date of creation: Mar 1983
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Publication status: published as Blanchard, Olivier J. "Methods of Solution and Simulation for Dynamic Rational Expectations Models." Economie Appliquee, Vol. XXXVI
Handle: RePEc:nbr:nberte:0028

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  1. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 7-46, May.
  2. McCallum, Bennett T., 1983. "On non-uniqueness in rational expectations models : An attempt at perspective," Journal of Monetary Economics, Elsevier, Elsevier, vol. 11(2), pages 139-168.
  3. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  4. Blanchard, Olivier J, 1979. "Backward and Forward Solutions for Economies with Rational Expectations," American Economic Review, American Economic Association, American Economic Association, vol. 69(2), pages 114-18, May.
  5. Shiller, Robert J., 1978. "Rational expectations and the dynamic structure of macroeconomic models : A critical review," Journal of Monetary Economics, Elsevier, Elsevier, vol. 4(1), pages 1-44, January.
  6. Lipton, David, et al, 1982. "Multiple Shooting in Rational Expectations Models [The Solution of Linear Difference Models under Rational Expectations]," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1329-33, September.
  7. Taylor, John B, 1977. "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," Econometrica, Econometric Society, Econometric Society, vol. 45(6), pages 1377-85, September.
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Cited by:
  1. Kalulumia, Pene & Nyankiye, Francine, 2000. "Labor Adjustment Costs, Macroeconomic Shocks and Real Business Cycles in a Small Open Economy," Journal of Macroeconomics, Elsevier, Elsevier, vol. 22(4), pages 671-694, October.
  2. Vidakovic, Neven & Zbašnik, Dušan, 2014. "New CNB measures to stimulate credit growth: problems and solutions," MPRA Paper 54195, University Library of Munich, Germany.
  3. Willem H. Buiter, 1984. "Policy evaluation and design for continuous time linear rational expectations models: some recent development," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0034, National Bureau of Economic Research, Inc.

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