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Solutions of Linear Rational Expectations Models

Published online by Cambridge University Press:  18 October 2010

L. Broze ,
C. Gourieroux  and
A. Szafarz
L. Broze
Affiliation:
IRSIA et Centre d'Economie Mathématique et d'Econométrie de l'Université Libre de Bruxelles
C. Gourieroux
Affiliation:
Université de Lille et Cepremap
A. Szafarz
Affiliation:
Centre d'Economie Mathématique et d'Econométrie de l'Université Libre de Bruxelles
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Abstract

Linear rational expectations models generally have a large number of solutions. It is thus important to describe them exhaustively in order to study their properties and subsequently estimate which solution best fits the data. In this paper, a global approach is suggested allowing a simultaneous treatment of all possible cases. The fundamental concepts are the revision processes appearing in the procedure of updating expectations. It isfound that the set of solutions is completely described by using a limitednumber of these processes. We show how the method may be applied to determine the set of stationary solutions admitting an infinite moving-average representation. We give a natural parametrization of this set and discuss the exact number of independent parameters.

Type
Research Article
Information
Econometric Theory , Volume 1 , Issue 3 , December 1985 , pp. 341 - 368
Copyright
Copyright © Cambridge University Press 1985 

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