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Abstract

This paper disputes what Blanchard and Kahn have reported as the solution of linear rational expectation(RE) systems many years ago. Their method leads to traditional determinacy condition which is used very much nowadays. In this paper we have a new look to the mathematical procedure of this solution method and the main problem in their solution will be shown. We introduce a new methodology for modeling the systems with expectation, while in future this way of modeling can be used to replace traditional RE models.

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File URL: http://mpra.ub.uni-muenchen.de/28320/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28320.

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Date of creation: 20 Nov 2010
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Handle: RePEc:pra:mprapa:28320

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Related research

Keywords: Rational expectation; Determinacy condition; Stability; Uniqueness; Predictive control;

Find related papers by JEL classification:

• C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
• D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
• H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

This paper has been announced in the following NEP Reports:

• NEP-ALL-2011-02-05 (All new papers)

References

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1. Tetlow, Robert J. & von zur Muehlen, Peter, 2009. "Robustifying learnability," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 296-316, February.
   
   • Robert J. Tetlow & Peter von zur Muehlen, 2006. "Robustifying Learnability," 2006 Meeting Papers 439, Society for Economic Dynamics.
   • Peter von zur Muehlen & Robert J. Tetlow, 2005. "Robustifying Learnability," Computing in Economics and Finance 2005 437, Society for Computational Economics.
   • Robert J. Tetlow & Peter von zur Muehlen, 2005. "Robustifying learnability," Finance and Economics Discussion Series 2005-58, Board of Governors of the Federal Reserve System (U.S.).
   • Robert J. Tetlow & Peter von zur Muehlen, 2006. "Robustifying learnability," Working Paper Series 593, European Central Bank.
2. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
   
   • Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
   • James Bullard & Kaushik Mitra, 2002. "Learning about monetary policy rules," Working Papers 2000-001, Federal Reserve Bank of St. Louis.
3. George W. Evans & Seppo Honkapohja, 2009. "Learning and Macroeconomics," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 421-451, 05.
   
   • George W. Evans & Seppo Honkapohja, 2008. "Learning and Macroeconomics," University of Oregon Economics Department Working Papers 2008-3, University of Oregon Economics Department.
4. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.

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Cited by:

1. Mostafavi, Moeen & Fatehi, Ali-Reza & Shakouri G., Hamed & Von zur Muehlen, Peter, 2011. "A predictive multi-agent approach to model systems with linear rational expectations," MPRA Paper 35351, University Library of Munich, Germany, revised 11 Dec 2011.

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