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A predictive multi-agent approach to model systems with linear rational expectations

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  • Mostafavi, Moeen
  • Fatehi, Ali-Reza
  • Shakouri G., Hamed
  • Von zur Muehlen, Peter

Abstract

Expectation formation plays a principal role in economic systems. We examine and revise the standard rational expectations (RE) model, generally taken as the best paradigm for expectations modelling, and suggest a new method to model rational expectations. Conventional conditions that assert the stability and uniqueness of popular solution methods are shown to be insufficient. The agent-based new modelling approach suggested in this paper will be shown to lead to uniquely stable solutions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35351.

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Date of creation: 08 Jan 2011
Date of revision: 11 Dec 2011
Handle: RePEc:pra:mprapa:35351

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Keywords: Rational expectation; Predictive control; Economics dynamic;

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  1. Tetlow, Robert J. & von zur Muehlen, Peter, 2006. "Robustifying learnability," Working Paper Series 0593, European Central Bank.
  2. 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.
  3. James Bullard & Kaushik Mitra, 2003. "Determinacy, learnability, and monetary policy inertia," Working Papers 2000-030, Federal Reserve Bank of St. Louis.
  4. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  5. Cho, Seonghoon & McCallum, Bennett T., 2009. "Another weakness of "determinacy" as a selection criterion for rational expectations models," Economics Letters, Elsevier, vol. 104(1), pages 17-19, July.
  6. Mostafavi, Moeen & Shakouri G., Hamed & Fatehi, Ali-Reza, 2010. "Why the determinacy condition is a weak criterion in rational expectations models," MPRA Paper 28320, University Library of Munich, Germany.
  7. Onatski, Alexei, 2006. "Winding number criterion for existence and uniqueness of equilibrium in linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 323-345, February.
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