Why the determinacy condition is a weak criterion in rational expectations models
AbstractThis 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28320.
Date of creation: 20 Nov 2010
Date of revision:
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)
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