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Discretionary Policy and Multiple Equilibria in LQ RE Models

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  • Blake, Andrew P.
  • Kirsanova, Tatiana

Abstract

We study discretionary equilibria in dynamic linear-quadratic rational expectations models. In contrast to the assumptions that pervade this literature we show that these models do have multiple equilibria in some situations. We demonstrate the existence of multiple discretionary equilibria by example. We investigate general properties of discretionary equilibria and discuss implications for numerical algorithms.

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File URL: http://mpra.ub.uni-muenchen.de/21901/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21901.

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Date of creation: 09 Nov 2006
Date of revision: 01 Apr 2010
Handle: RePEc:pra:mprapa:21901

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Keywords: Time Consistency; Discretion; Multiple Equilibria; LQ RE models;

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