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Why the determinacy condition is a weak criterion in rational expectations models

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Author Info

  • Mostafavi, Moeen
  • Shakouri G., Hamed
  • Fatehi, Ali-Reza

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

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  1. Tetlow, Robert J. & von zur Muehlen, Peter, 2006. "Robustifying learnability," Working Paper Series 0593, European Central Bank.
  2. Kaushik Mitra & James Bullard, . "Learning About Monetary Policy Rules," Discussion Papers 00/41, Department of Economics, University of York.
  3. 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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