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Methods of Solution and Simulation for Dynamic Rational Expectations Models

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  • Olivier J. Blanchard

Abstract

Many methods have been proposed for the solution and simulation of medium or large size models under the assumption of rational expectations. The purpose of this paper is to present these methods, and to show how and where each can be applied. The methods fall into two groups. Methods in the first can be used to solve for perfect foresight paths in non-linear models. Methods in the second can be used in linear models, to solve either for paths or processes followed by endogenous variables. All the methods described here have been used in empirical applications and computer algorithms are available for most.

Suggested Citation

  • Olivier J. Blanchard, 1983. "Methods of Solution and Simulation for Dynamic Rational Expectations Models," NBER Technical Working Papers 0028, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0028
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    References listed on IDEAS

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    1. Shiller, Robert J., 1978. "Rational expectations and the dynamic structure of macroeconomic models : A critical review," Journal of Monetary Economics, Elsevier, vol. 4(1), pages 1-44, January.
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    5. Lipton, David, et al, 1982. "Multiple Shooting in Rational Expectations Models [The Solution of Linear Difference Models under Rational Expectations]," Econometrica, Econometric Society, vol. 50(5), pages 1329-1333, September.
    6. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    7. Taylor, John B, 1977. "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," Econometrica, Econometric Society, vol. 45(6), pages 1377-1385, September.
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    2. Buiter, Willem H., 1984. "Policy Evaluation and Design for Continuous Time Linear Rational Expectations Models: Some Recent Developments," CEPR Discussion Papers 15, C.E.P.R. Discussion Papers.
    3. Kalulumia, Pene & Nyankiye, Francine, 2000. "Labor Adjustment Costs, Macroeconomic Shocks and Real Business Cycles in a Small Open Economy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 671-694, October.

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