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The Spectral Approach to Linear Rational Expectations Models

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  • Majid M. Al-Sadoon

Abstract

This paper considers linear rational expectations models in the frequency domain. The paper characterizes existence and uniqueness of solutions to particular as well as generic systems. The set of all solutions to a given system is shown to be a finite dimensional affine space in the frequency domain. It is demonstrated that solutions can be discontinuous with respect to the parameters of the models in the context of non-uniqueness, invalidating mainstream frequentist and Bayesian methods. The ill-posedness of the problem motivates regularized solutions with theoretically guaranteed uniqueness, continuity, and even differentiability properties.

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  • Majid M. Al-Sadoon, 2020. "The Spectral Approach to Linear Rational Expectations Models," Papers 2007.13804, arXiv.org, revised Aug 2024.
    • Handle: RePEc:arx:papers:2007.13804
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    References listed on IDEAS

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    1. Majid M. Al-Sadoon, 2020. "Regularized Solutions to Linear Rational Expectations Models," Papers 2009.05875, arXiv.org, revised Oct 2020.

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