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Does a Unique Solution Exist for a Nonlinear Rational Expectation Equation with Zero Lower Bound?

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  • Takashi Tamura

    (Osaka Prefecture University)

Abstract

To formalize a nonlinear rational expectation model in macroeconomics as a functional equation, we investigate the existence of a unique solution. Assuming that the probability of large exogenous disturbance occurring is sufficiently small, we prove that a unique solution exists. This result provides a rigorous foundation for research on nonlinear rational expectation models as a natural extension of existing linear models.

Suggested Citation

  • Takashi Tamura, 2020. "Does a Unique Solution Exist for a Nonlinear Rational Expectation Equation with Zero Lower Bound?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(2), pages 257-289, June.
    • Handle: RePEc:kap:apfinm:v:27:y:2020:i:2:d:10.1007_s10690-019-09293-1
    DOI: 10.1007/s10690-019-09293-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Nonlinear rational expectation model; Functional equation; Zero lower bound on interest rates; Lyapunov functions;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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