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Predetermined and non-predetermined variables in rational expectations models

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  • Buiter, Willem H.

Abstract

The distinctiof between predetermined and non-predetermined variables is a crucial one in rational expectations models. I consider and reject two definitions, one proposed by Blanchard and Kahn and one by Chow. Both definitions lead to possible misc1assifications. Instead I propose the following defin)tion. A variable is non-`redetermined if and only if its current value is a function of current anticipations mf future values of endogenous and/or exogenous variables. This definition focuses on the essential economic property of non-predetermined variables: unlike predetermined variables they can respond instantaneously to changes in expectations due to "news." The new definition also fits the structure of rational expectations models solution algorithms such as the one proposed by Blanchard and Kahn.
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  • Buiter, Willem H., 1982. "Predetermined and non-predetermined variables in rational expectations models," Economics Letters, Elsevier, vol. 10(1-2), pages 49-54.
    • Handle: RePEc:eee:ecolet:v:10:y:1982:i:1-2:p:49-54
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    Cited by:

    1. Marini, G. & Scaramozzino, P., 1989. "Monopolistic competition, expected inflation and contract length," Discussion Paper 1989-40, Tilburg University, Center for Economic Research.
    2. Zadrozny, Peter A., 1998. "An eigenvalue method of undetermined coefficients for solving linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 22(8-9), pages 1353-1373, August.
    3. David Staines, 2023. "Stochastic Equilibrium the Lucas Critique and Keynesian Economics," Papers 2312.16214, arXiv.org, revised Jun 2024.
    4. Ms. Susana Garcia Cervero & J. Humberto Lopez & Mr. Enrique Alberola Ila & Mr. Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates: Euro, Dollar, “Ins,” “Outs,” and Other Major Currencies in a Panel Cointegration Framework," IMF Working Papers 1999/175, International Monetary Fund.
    5. Alejandro Rodríguez Arana, 2012. "Is it Possible to Go Back to Ad Hoc Macroeconomic Models? The Case of the Romer-Taylor Model," Working Papers 0312, Universidad Iberoamericana, Department of Economics.
    6. Parello, Carmelo Pierpaolo, 2012. "Indeterminacy in a dynamic small open economy with international migration," MPRA Paper 40013, University Library of Munich, Germany.
    7. Rodríguez-Arana, Alejandro, 2014. "Política fiscal, expectativas y transición dinámica en el modelo simple de crecimiento endógeno," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(18), pages 7-32, primer se.
    8. Escañuela Romana, Ignacio, 2018. "Instability in the basic New Keynesian model under limited information," MPRA Paper 88015, University Library of Munich, Germany.
    9. Helton Saulo & Leandro Rêgo & Jose Divino, 2013. "Fiscal and monetary policy interactions: a game theory approach," Annals of Operations Research, Springer, vol. 206(1), pages 341-366, July.
    10. Kim, Young Chul, 2009. "Lifetime Network Externality and the Dynamics of Group Inequality," MPRA Paper 18767, University Library of Munich, Germany.
    11. Loisel, Olivier, 2009. "Bubble-free policy feedback rules," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1521-1559, July.
    12. John G. Thistle, 2018. "The Origin and the Resolution of Nonuniqueness in Linear Rational Expectations," Papers 1806.06657, arXiv.org, revised Apr 2019.

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