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Rational Expectations Equilibrium with Econometric Models

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  • Robert M. Anderson
  • Hugo Sonnenschein

Abstract

We prove the existence of general economic equilibrium under uncertainty when agents form econometric models of the relationship among their private information, prices, and the state of the environment. The functional form of each agent's model is specified in advance, with a finite number of parameters to be determined. Agents are then thought of as performing linear least squares estimation of the parameters. Equilibrium requires not only that markets clear, but also that each agent be using the vector of parameter values which, within a compact convex set of parameters, gives the least squares best fit to the data that is generated by the working of the economy when agents adhere to their models.

Suggested Citation

  • Robert M. Anderson & Hugo Sonnenschein, 1985. "Rational Expectations Equilibrium with Econometric Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 359-369.
    • Handle: RePEc:oup:restud:v:52:y:1985:i:3:p:359-369.
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    Citations

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    Cited by:

    1. Adam, Klaus & Marcet, Albert, 2011. "Internal rationality, imperfect market knowledge and asset prices," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1224-1252, May.
    2. Adam, Klaus, 2005. "Learning To Forecast And Cyclical Behavior Of Output And Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 9(1), pages 1-27, February.
    3. Jernej Copic, 2015. "Disagreement, information and welfare," 2015 Meeting Papers 1344, Society for Economic Dynamics.
    4. Marcet, Albert & Adam, Klaus, 2009. "Internal Rationality and Asset Prices," CEPR Discussion Papers 7498, C.E.P.R. Discussion Papers.
    5. Klaus Adam, 2004. "Should macroeconomists consider restricted perception equilibria? Evidence from the experimental laboratory," Computing in Economics and Finance 2004 338, Society for Computational Economics.
    6. Adam, K., 2000. "Adaptive Learning and the Cyclical Behavior of Output and Inflation," Economics Working Papers eco2000/25, European University Institute.
    7. Anderson, Robert M. & Duanmu, Haosui & Ghosh, Aniruddha & Khan, M. Ali, 2024. "On existence of Berk-Nash equilibria in misspecified Markov decision processes with infinite spaces," Journal of Economic Theory, Elsevier, vol. 217(C).
    8. Judd, Kenneth L., 1997. "Computational economics and economic theory: Substitutes or complements?," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 907-942, June.

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