Causality, Structure And The Uniqueness Of Rational Expectations Equilibria
Consider a rational expectations (RE) model that includes a relationship between variables x t and z t+1 . To be considered structural and potentially useful as a guide to actual behavior, this model must specify whether x t is influenced by the expectation at t of z t+1 or, alternatively, that z t+1 is directly influenced (via some inertial mechanism) by x t (i.e., that z t is influenced by x t-1 ). These are quite different phenomena. Here it is shown that, for a very broad class of multivariate linear RE models, distinct causal specifications involving both expectational and inertial influences will be uniquely associated with distinct solutions--which will result operationally from different specifications concerning which of the model's variables are predetermined. It follows that for a given structure, and with a natural continuity assumption, there is only one RE solution that is fully consistent with the model's specification. Furthermore, this solution does not involve "sunspot" phenomena.
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Volume (Year): 79 (2011)
Issue (Month): s1 (06)
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