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Is There More than One Way to be E-Stable?

  • Joseph Pearlman

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We initially examine two different methods for learning about parameters in a Rational Expectations setting, and show that there are conflicting E-stability results. We show that this conflict also extends to Minimum State Variable (MSV) representations. One of these methods of learning lends itself to the examination of E-stability for the generic forward-looking rational expectations model. This leads to a completely general relationship between saddlepath stability and E-stability, and a generalization of MSV results.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0701.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200701.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0701
Contact details of provider: Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
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Web page: http://www.st-andrews.ac.uk/cdma
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  1. Bennett T. McCallum, 2006. "E-Stability vis-a-vis Determinacy Results for a Broad Class of Linear Rational Expectations Models," NBER Working Papers 12441, National Bureau of Economic Research, Inc.
  2. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  3. George W. Evans & Seppo Honkapohja, 2002. "Monetary Policy, Expectations and Commitment," University of Oregon Economics Department Working Papers 2002-11, University of Oregon Economics Department, revised 01 Feb 2004.
  4. Bennett T. McCallum, 2002. "The Unique Minimum State Variable RE Soluiton is E-Stable in All Well Formulated Linear Models," GSIA Working Papers 2003-25, Carnegie Mellon University, Tepper School of Business.
  5. 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.
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