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Solutions of Linear Rational Expectations Models

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  • Broze, L.
  • Gourieroux, C.
  • Szafarz, A.

Abstract

Linear rational expectations models generally have a large number of solutions. It is thus important to describe them exhaustively in order to study their properties and subsequently estimate which solution best fits the data. In this paper, a global approach is suggested allowing a simultaneous treatment of all possible cases. The fundamental concepts are the revision processes appearing in the procedure of updating expectations. It isfound that the set of solutions is completely described by using a limitednumber of these processes. We show how the method may be applied to determine the set of stationary solutions admitting an infinite moving-average representation. We give a natural parametrization of this set and discuss the exact number of independent parameters.

Suggested Citation

  • Broze, L. & Gourieroux, C. & Szafarz, A., 1985. "Solutions of Linear Rational Expectations Models," Econometric Theory, Cambridge University Press, vol. 1(03), pages 341-368, December.
  • Handle: RePEc:cup:etheor:v:1:y:1985:i:03:p:341-368_01
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    1. Atıcı, Ferhan M. & Ekiz, Funda & Lebedinsky, Alex, 2014. "Cagan type rational expectation model on complex discrete time domains," European Journal of Operational Research, Elsevier, vol. 237(1), pages 148-151.
    2. John Geweke & Joel Horowitz & M. Hashem Pesaran, 2006. "Econometrics: A Bird’s Eye View," CESifo Working Paper Series 1870, CESifo Group Munich.
    3. Timmermann, Allan, 1995. "Cointegration Tests of Present Value Models with a Time-Varying Discount Factor," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(1), pages 17-31, Jan.-Marc.
    4. Bernd Funovits, 2014. "Implications of Stochastic Singularity in Linear Multivariate Rational Expectations Models," Vienna Economics Papers 1405, University of Vienna, Department of Economics.
    5. Costly Adjustment Under Rational Expectations: A Generalization, 1988. "UCLA, Trinity College (Cambridge)," UCLA Economics Working Papers 480, UCLA Department of Economics.
    6. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May.
    7. John Bailey Jones & Sohini Sahu, 2017. "Transition accounting for India in a multi-sector dynamic general equilibrium model," Economic Change and Restructuring, Springer, vol. 50(4), pages 299-339, November.
    8. Ariane Szafarz, 2009. "How Did Financial-Crisis-Based Criticisms of Market Efficiency Get It So Wrong?," Working Papers CEB 09-048.RS, ULB -- Universite Libre de Bruxelles.
    9. C. R. McKenzie & Michael McAleer, 2001. "Comparing Tests of Autoregressive Versus Moving Average Errors in Regression Models Using Bahadur's Asymptotic Relative Efficiency," ISER Discussion Paper 0537, Institute of Social and Economic Research, Osaka University.
    10. Beatriz Armendariz & Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2011. "Subsidy Uncertainty and Microfinance Mission Drift," Working Papers CEB 11-014, ULB -- Universite Libre de Bruxelles.
    11. Majid M. Al-Sadoon, 2016. "The Linear Systems Approach to Linear Rational Expectations Models," Working Papers 875, Barcelona Graduate School of Economics.

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