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Arbitrary initial conditions and the dimension of indeterminacy in linear rational expectations models

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  • Marco M. Sorge

    (University of Salerno, University of Göttingen and CSEF)

Abstract

Indeterminate equilibrium rational expectations (RE) models are ubiquitous in both theoretical and applied work in dynamic macroeconomics. The issue of characterizing the exact dimension of indeterminacy—i.e. of deriving the full set of causal and stable solutions to linear RE models—has only recently been addressed in the context of general and multivariate settings. This paper complements existing results by identifying bounds on the observable dimension of indeterminacy of linear RE models in the presence of arbitrary initial conditions. Implications for the estimation of indeterminate equilibrium RE models are discussed.

Suggested Citation

  • Marco M. Sorge, 2020. "Arbitrary initial conditions and the dimension of indeterminacy in linear rational expectations models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 43(1), pages 363-372, June.
    • Handle: RePEc:spr:decfin:v:43:y:2020:i:1:d:10.1007_s10203-019-00269-4
    DOI: 10.1007/s10203-019-00269-4
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Rational expectations; Indeterminacy; Initial conditions;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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