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A Solution Method For Linear Rational Expectation Models Under Imperfect Information

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  • Shibayama, Katsuyuki

Abstract

This article presents a solution algorithm for linear rational expectation models under imperfect information, in which some decisions are made based on smaller information sets than others. In our solution representation, imperfect information does not affect the coefficients on crawling variables, which implies that, if a perfect-information model exhibits saddle-path stability, for example, the corresponding imperfect-information models also exhibit saddle-path stability. However, imperfect information can significantly alter the quantitative properties of a model. Indeed, this article demonstrates that, with a predetermined wage contract, the standard RBC model remarkably improves the correlation between labor productivity and output.

Suggested Citation

  • Shibayama, Katsuyuki, 2011. "A Solution Method For Linear Rational Expectation Models Under Imperfect Information," Macroeconomic Dynamics, Cambridge University Press, vol. 15(4), pages 465-494, September.
    • Handle: RePEc:cup:macdyn:v:15:y:2011:i:04:p:465-494_99
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    Cited by:

    1. Sorge Marco M., 2020. "Computing sunspot solutions to rational expectations models with timing restrictions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(2), pages 1-10, June.
    2. Anna Kormilitsina, 2013. "Solving Rational Expectations Models with Informational Subperiods: A Perturbation Approach," Computational Economics, Springer;Society for Computational Economics, vol. 41(4), pages 525-555, April.
    3. Carravetta, Francesco & Sorge, Marco M., 2013. "Model reference adaptive expectations in Markov-switching economies," Economic Modelling, Elsevier, vol. 32(C), pages 551-559.

    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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