A Note on the Solution of A Two-Point Boundary Value Problem Frequently Encountered in Rational Expectations Models
The paper analyses a class of two-point boundary value problem for systems of linear differential equations with constant coefficients. The boundary conditions are expressed as linear restrictions on the state vector at an initial time and at a finite terminal time. This is applicable even if the terminal conditions involve the asymptotic convergence of the system to steady-state equilibrium. as is frequently the case in eC9nomic applications. It is also a suitable format for numerical applications using existing computer routines. The case in which there are more stable eigenvalues than predetermined state variables is also considered. An example involving a small open economy macroeconomic model is used to illustrate the analysis.
|Date of creation:||Jun 1981|
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- Blanchard, Olivier J, 1979. "Backward and Forward Solutions for Economies with Rational Expectations," American Economic Review, American Economic Association, vol. 69(2), pages 114-118, May.
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"Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation,"
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- Flood, Robert P & Garber, Peter M, 1980. "Market Fundamentals versus Price-Level Bubbles: The First Tests," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 745-770, August.
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