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Rational Expectations Dynamics: A Methodological Critique

  • Donald A. R., George
  • Les, Oxley

This paper analyses RE macromodels from the methodological perspective. It proposes a particular property, robustness, which should be considered a necessary feature of scienti cally valid models in economics, but which is absent from many RE macromodels. To restore this property many macroeconomists resort to detailed and implausible assumptions, which take their models a long way from simple Rational Expectations. The paper draws attention to the problems inherent in the technique of local linearisation and concludes by proposing the use of nonlinear models, analysed globally.

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Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2013-45.

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Date of creation: 2013
Date of revision:
Handle: RePEc:edn:sirdps:472
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  6. Buiter, W, 1982. "Saddlepoint Problems in Continuous Time Rational Expectations Models : A General Method and Some Macroeconomic Examples," The Warwick Economics Research Paper Series (TWERPS) 200, University of Warwick, Department of Economics.
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  10. Chiarella, Carl, 1990. "Excessive exchange rate variability : A possible explanation using nonlinear economic dynamics," European Journal of Political Economy, Elsevier, vol. 6(3), pages 315-352, December.
  11. Chiarella, Carl, 1986. "Perfect foresight models and the dynamic instability problem from a higher viewpoint," Economic Modelling, Elsevier, vol. 3(4), pages 283-292, October.
  12. Frank, Murray Z & Stengos, Thanasis, 1988. " Chaotic Dynamics in Economic Time-Series," Journal of Economic Surveys, Wiley Blackwell, vol. 2(2), pages 103-33.
  13. Chiarella, Carl & Flaschel, Peter & Wells, Graeme, 2003. "The Dynamics Of Keynesian Monetary Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 7(03), pages 473-475, June.
  14. Baumol, William J. & Benhabib, Jess, 1987. "Chaos: Significance, Mechanism, and Economic Applications," Working Papers 87-16, C.V. Starr Center for Applied Economics, New York University.
  15. Michele Boldrin & Michael Woodford, 1988. "Equilibruim Models Displaying Endogenous Fluctuations and Chaos: A Survey," UCLA Economics Working Papers 530, UCLA Department of Economics.
  16. George, Donald A R, 1981. "Equilibrium and Catastrophes in Economics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 28(1), pages 43-61, February.
  17. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
  18. Weder, Mark, 2003. "Taylor Rules and Macroeconomic Instability or How the Central Bank Can Pre-empt Sunspot Expectations," SFB 373 Discussion Papers 2003,49, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  19. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc.
  20. Desai, Meghnad, 1973. "Growth cycles and inflation in a model of the class struggle," Journal of Economic Theory, Elsevier, vol. 6(6), pages 527-545, December.
  21. Søren Bo Nielsen & Peter Birch Sørensen, 1989. "Capital Income Taxation in a Growing Open Economy," Discussion Papers 89-14, University of Copenhagen. Department of Economics.
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  24. Montiel, Peter & Ul Haque, Nadeem, 1991. "Dynamic responses to policy and exogenous shocks in an empirical developing country model with rational expectations," Economic Modelling, Elsevier, vol. 8(2), pages 201-218, April.
  25. 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.
  26. Van De Klundert, T., 1989. "Reducing External Debt In A World With Imperfect Assets And Imperfect Commodity Substitution," Papers 8929a, Tilburg - Center for Economic Research.
  27. Sussman, Oren, 1991. "Macroeconomic Effects of a Tax on Bond Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 352-66, August.
  28. Buiter, Willem H & Miller, Marcus, 1981. "Monetary Policy and International Competitiveness: The Problems of Adjustment," Oxford Economic Papers, Oxford University Press, vol. 33(0), pages 143-75, Supplemen.
  29. Neary, J Peter & Purvis, Douglas D, 1982. " Sectoral Shocks in a Dependent Economy: Long-run Adjustment and Short-run Accommodation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 229-53.
  30. Turnovsky, Stephen J. & Nguyen, Duc-Tho, 1980. "Perfect myopic foresight and the effects of monetary and fiscal policy in a simple inflationary model : Some analytical and numerical results," European Economic Review, Elsevier, vol. 14(2), pages 237-269.
  31. Robert E. Lucas, Jr. & Thomas J. Sargent, 1979. "After Keynesian macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
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