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A Generalized Approach To Indeterminacy In Linear Rational Expectations Models
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Book Synopsis A Generalized Approach to Indeterminacy in Linear Rational Expectations Models by : Francesco Bianchi
Download or read book A Generalized Approach to Indeterminacy in Linear Rational Expectations Models written by Francesco Bianchi and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a novel approach to deal with the problem of indeterminacy in Linear Rational Expectations models. The method consists of augmenting the original model with a set of auxiliary exogenous equations that are used to provide the adequate number of explosive roots in presence of indeterminacy. The solution in this expanded state space, if it exists, is always determinate, and is identical to the indeterminate solution of the original model. The proposed approach accommodates determinacy and any degree of indeterminacy, and it can be implemented even when the boundaries of the determinacy region are unknown. As a result, the researcher can estimate the model by using standard packages without restricting the estimates to a certain area of the parameter space. We apply our method to simulated and actual data from a prototypical New-Keynesian model for both regions of the parameter space. We show that our method successfully recovers the true parameter values independent of the initial values.
Book Synopsis A Generalized Approach to Indeterminacy in Linear Rational Expectations Models by : François Bianchi
Download or read book A Generalized Approach to Indeterminacy in Linear Rational Expectations Models written by François Bianchi and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Determinacy, Indeterminacy and Dynamic Misspecification in Linear Rational Expectations Models by :
Download or read book Determinacy, Indeterminacy and Dynamic Misspecification in Linear Rational Expectations Models written by and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a testing strategy for the null hypothesis that a multivariate linear rational expectations (LRE) model has a unique stable solution (determinacy) against the alternative of multiple stable solutions (indeterminacy). Under a proper set of identification restrictions, determinacy is investigated by a misspecification-type approach in which the result of the overidentifying restrictions test obtained from the estimation of the LRE model through a version of generalized method of moments is combined with the result of a likelihood-based test for the cross-equation restrictions that the LRE places on its finite order reduced form under determinacy. This approach (i) circumvents the nonstandard inferential problem that a purely likelihood-based approach implies because of the presence of nuisance parameters that appear under the alternative but not under the null, (ii) does not involve inequality parametric restrictions and nonstandard asymptotic distributions, and (iii) gives rise to a joint test which is consistent against indeterminacy almost everywhere in the space of nuisance parameters, i.e. except for a point of zero measure which gives rise to minimum state variable solutions, and is also consistent against the dynamic misspecification of the LRE model. Monte Carlo simulations show that the testing strategy delivers reasonable size coverage and power in finite samples. An empirical illustration focuses on the determinacy/indeterminacy of a New Keynesian monetary business cycle model for the US.
Book Synopsis A General Approach to the Solution of Nonlinear Rational Expectations Models by : Andrew P. Blake
Download or read book A General Approach to the Solution of Nonlinear Rational Expectations Models written by Andrew P. Blake and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Linear Rational Expectations Models by : Charles H. Whiteman
Download or read book Linear Rational Expectations Models written by Charles H. Whiteman and published by U of Minnesota Press. This book was released on 1984 with total page 151 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Assessing Rational Expectations 2 by : Roger Guesnerie
Download or read book Assessing Rational Expectations 2 written by Roger Guesnerie and published by MIT Press. This book was released on 2005-02-18 with total page 498 pages. Available in PDF, EPUB and Kindle. Book excerpt: A theoretical assessment of the Rational Expectations Hypothesis through subjecting a collection of economic models to an "eductive stability" test. The rational expectations hypothesis (REH) dominates economic modeling in areas ranging from monetary theory, macroeconomics, and general equilibrium to finance. In this book, Roger Guesnerie continues the critical analysis of the REH begun in his Assessing Rational Expectations: Sunspot Multiplicity and Economic Fluctuations, which dealt with the questions raised by multiplicity and its implications for a theory of endogenous fluctuations. This second volume emphasizes "eductive" learning: relying on careful reasoning, agents must deduce what other agents guess, a process that differs from the standard evolutionary learning experience in which agents make decisions about the future based on past experiences. A broad "eductive" stability test is proposed that includes common knowledge and results in a unique "rationalizable expectations equilibrium." This test provides the basis for Guesnerie's theoretical assessment of the plausibility of the REH's expectational coordination, emphasizing, for different categories of economic models, conditions for the REH's success or failure. Guesnerie begins by presenting the concepts and methods of the eductive stability analysis in selected partial equilibrium models. He then explores to what extent general equilibrium strategic complementarities interfere with partial equilibrium considerations in the formation of stable expectations. Guesnerie next examines two issues relating to eductive stability in financial market models, speculation and asymmetric price information. The dynamic settings of an infinite horizon model are then taken up, and particular standard and generalized saddle-path solutions are scrutinized. Guesnerie concludes with a review of general questions and some "cautious" remarks on the policy implications of his analysis.
Book Synopsis Business Cycle Models with Indeterminacy by : Mark Weder
Download or read book Business Cycle Models with Indeterminacy written by Mark Weder and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt: Three original models which explain business cycles as a result of self-fulfilling expectations are presented. The models are founded on the structure of dynamic general equilibrium theory. Market power and increasing returns to scale are introduced which allow indeterminancy of the Rational Expectations equilibria to be obtained. Unlike the majority of existing literature on this subject, the departures from perfect markets and constant returns presented in these models are very low and, more importantly, at a realistic level to achieve the respective results. It is demonstrated in all of the presented models that stylized facts of the business cycle can be reproduced.
Book Synopsis Solving Linear Rational Expectations Models with Lagged Expectations Quickly and Easily by :
Download or read book Solving Linear Rational Expectations Models with Lagged Expectations Quickly and Easily written by and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A solution method is derived in this paper for solving a system of linear rational-expectations equation with lagged expectations (e.g., models incorporating sticky information) using the method of undetermined coefficients for the infinite MA representation. The method applies a combination of a Generalized Schur Decomposition familiar elsewhere in the literature and a simple system of linear equations when lagged expectations are present to the infinite MA representation. Execution is faster, applicability more general, and use more straight-forward than with existing algorithms. Current methods of truncating lagged expectations are shown to not generally be innocuous and the use of such methods are rendered obsolete by the tremendous gains in computational efficiency of the method here which allows for a solution to floating-point accuracy in a fraction of the time required by standard methods. The associated computational application of the method provides impulse responses to anticipated and unanticipated innovations, simulations, and frequency-domain and simulated moments. -- Lagged expectations ; linear rational expectations models; block tridiagonal ; Generalized Schur Form ; QZ decomposition ; LAPACK
Book Synopsis The Forward Method as a Solution Refinement in Rational Expectations Models by : Seonghoon Cho
Download or read book The Forward Method as a Solution Refinement in Rational Expectations Models written by Seonghoon Cho and published by . This book was released on 2008 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper generalizes the standard forward method of recursive substitution to a general class of linear Rational Expectations models with potentially multiple fundamental solutions. We propose a key property embedded in the forward solution -- the no-bubble condition -- as an economically sensible solution refinement in the class of fundamental solutions. In the literature, the no-bubble condition has been assumed to rule out non-fundamental bubble solutions. However, since the condition involves expectations of the future endogenous variables, it must be verified for every Rational Expectations equilibrium. We show that the forward solution is the only fundamental solution satisfying the no-bubble condition and that it is hard to justify economically fundamental solutions violating this condition. We provide several economic examples where the fundamental solutions obtained by other solution methods and refined by other solution selection criteria violate the no-bubble condition.
Book Synopsis Expectations by : Janne Roslyn Rayner
Download or read book Expectations written by Janne Roslyn Rayner and published by . This book was released on 1980 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Rational Expectations Models with Anticipated Shocks and Optimal Policy by : Hans-Werner Wohltmann
Download or read book Rational Expectations Models with Anticipated Shocks and Optimal Policy written by Hans-Werner Wohltmann and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Refining Linear Rational Expectations Models and Equilibria by : Seonghoon Cho
Download or read book Refining Linear Rational Expectations Models and Equilibria written by Seonghoon Cho and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes forward convergence as a model refinement scheme for linear rational expectations (LRE) models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the LRE models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically meaningful in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.
Book Synopsis Bayesian Estimation of DSGE Models by : Edward P. Herbst
Download or read book Bayesian Estimation of DSGE Models written by Edward P. Herbst and published by Princeton University Press. This book was released on 2015-12-29 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dynamic stochastic general equilibrium (DSGE) models have become one of the workhorses of modern macroeconomics and are extensively used for academic research as well as forecasting and policy analysis at central banks. This book introduces readers to state-of-the-art computational techniques used in the Bayesian analysis of DSGE models. The book covers Markov chain Monte Carlo techniques for linearized DSGE models, novel sequential Monte Carlo methods that can be used for parameter inference, and the estimation of nonlinear DSGE models based on particle filter approximations of the likelihood function. The theoretical foundations of the algorithms are discussed in depth, and detailed empirical applications and numerical illustrations are provided. The book also gives invaluable advice on how to tailor these algorithms to specific applications and assess the accuracy and reliability of the computations. Bayesian Estimation of DSGE Models is essential reading for graduate students, academic researchers, and practitioners at policy institutions.
Book Synopsis Learning to Become Rational by : Markus Zenner
Download or read book Learning to Become Rational written by Markus Zenner and published by Springer Science & Business Media. This book was released on 2013-11-09 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: 1. 1 Rational Expectations and Learning to Become Rational A characteristic feature of dynamic economic models is that, if future states of the economy are uncertain, the expectations of agents mat ter. Producers have to decide today which amount of a good they will produce not knowing what demand will be tomorrow. Consumers have to decide what they spend for consumption today not knowing what prices will prevail tomorrow. Adopting the neo-classical point of view that economic agents are 'rational' in the sense that they behave in their own best interest given their expectations about future states of the ecomomy it is usually assumed that agents are Bayesian deci sion makers. But, as LUCAS points out, there remains an element of indeterminacy: Unfortunately, the general hypothesis that economic agents are Bayesian decision makers has, in many applications, lit tle empirical content: without some way of infering what an agent's subjective view of the future is, this hypothesis is of no help in understanding his behavior. Even psychotic behavior can be (and today, is) understood as "rational", given a sufficiently abnormal view of relevant probabili ties. To practice economics, we need some way (short of psychoanalysis, one hopes) of understanding which decision problem agents are solving. (LucAs (1977, p. 15)) 2 CHAPTER 1. INTRODUCTION 1. 1.
Book Synopsis On Non-uniqueness in Rational Expectations Models by : Bennett T. McCallum
Download or read book On Non-uniqueness in Rational Expectations Models written by Bennett T. McCallum and published by . This book was released on 1981 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many macroeconomic models involving rational expect at ions give rise to an infinity of solution paths, even when the models are linear in all variables. Some writers have suggested that this non-uniqueness constitutes a serious weakness for the rational expectations hypothesis. One purpose of the present paper is to argue that the non-uniqueness in question is not properly attributable to the rationality hypothesis but, instead, is a general feature of dynamic models involving expectations. It is also argued that there typically exists, in a very wide class of linear rational expectations models, a single solution that excludes "bubble" or "bootstrap" effects ones that occur only because they are arbitrarily expected to occur. A systematic procedure for obtaining solutions free from such effects is introduced and discussed. In addition, this procedure is used to interpret and reconsider several prominent examples with solution multiplicities, including ones developed by Fischer Black and John B. Taylor. [Resumen de autor]
Book Synopsis Linear Rational Expectations Models by : N. Christodoulakis
Download or read book Linear Rational Expectations Models written by N. Christodoulakis and published by . This book was released on 1985 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Exact Linear Rational Expectations Models by : Lars Peter Hansen
Download or read book Exact Linear Rational Expectations Models written by Lars Peter Hansen and published by . This book was released on 1981 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
