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Solutions of Dynamic Linear Rational Expectations Models

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  • Laurence Broze
  • Christian Gouriéroux
  • Ariane Szafarz

Abstract

Linear rational expectations models generally have a large number of solutions. It is thus important to describe them exhaustively in order to study their properties and subsequently estimate which solution best fits the data. In this paper, a global approach is suggested allowing a simultaneous treatment of all possible cases. The fundamental concepts are the revision processes appearing in the procedure of updating expectations. It isfound that the set of solutions is completely described by using a limitednumber of these processes. We show how the method may be applied to determine the set of stationary solutions admitting an infinite moving-average representation. We give a natural parametrization of this set and discuss the exact number of independent parameters. © 1985, Cambridge University Press. All rights reserved.

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  • Laurence Broze & Christian Gouriéroux & Ariane Szafarz, 1985. "Solutions of Dynamic Linear Rational Expectations Models," ULB Institutional Repository 2013/675, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/675
    Note: SCOPUS: ar.j
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    1. Junior, Renato Galvão Flôres & Szafarz, Ariane, 1992. "Minimal identification of dynamic rational expectations systems," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 46(3), July.
    2. Szafarz, Ariane, 2012. "Financial crises in efficient markets: How fundamentalists fuel volatility," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 105-111.
    3. Laurence Broze & Ariane Szafarz, 1985. "Solutions des modèles linéaires à anticipations rationnelles," ULB Institutional Repository 2013/679, ULB -- Universite Libre de Bruxelles.
    4. Jones, John Bailey, 2002. "Has fiscal policy helped stabilize the postwar U.S. economy?," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 709-746, May.
    5. Enrique Martínez García, 2016. "Finite-Order VAR Representation of Linear Rational Expectations Models: With Some Lessons for Monetary Policy," Globalization Institute Working Papers 285, Federal Reserve Bank of Dallas.
    6. Geweke, J. & Joel Horowitz & Pesaran, M.H., 2006. "Econometrics: A Bird’s Eye View," Cambridge Working Papers in Economics 0655, Faculty of Economics, University of Cambridge.
    7. Beatriz Armendariz & Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2011. "Subsidy Uncertainty and Microfinance Mission Drift," Working Papers CEB 11-014, ULB -- Universite Libre de Bruxelles.
    8. Al-Sadoon, Majid M., 2018. "The Linear Systems Approach To Linear Rational Expectations Models," Econometric Theory, Cambridge University Press, vol. 34(3), pages 628-658, June.
    9. Ariane Szafarz, 2009. "How Did Financial-Crisis-Based Criticisms of Market Efficiency Get It So Wrong?," Working Papers CEB 09-048.RS, ULB -- Universite Libre de Bruxelles.
    10. Broze, Laurence & Gourieroux Christian & Szafarz A, 1986. "Reduction and identification of simultaneous equations models with rational expectations," CEPREMAP Working Papers (Couverture Orange) 8601, CEPREMAP.
    11. Atıcı, Ferhan M. & Ekiz, Funda & Lebedinsky, Alex, 2014. "Cagan type rational expectation model on complex discrete time domains," European Journal of Operational Research, Elsevier, vol. 237(1), pages 148-151.
    12. Enrique Martínez García, 2020. "A Matter of Perspective: Mapping Linear Rational Expectations Models into Finite-Order VAR Form," Globalization Institute Working Papers 389, Federal Reserve Bank of Dallas.
    13. Xavier De Scheemaekere & Kim Oosterlinck & Ariane Szafarz, 2012. "Addressing Economic Crises: The Reference-Class Problem," Working Papers CEB 12-024, ULB -- Universite Libre de Bruxelles.
    14. Majid M. Al-Sadoon, 2020. "The Spectral Approach to Linear Rational Expectations Models," Papers 2007.13804, arXiv.org, revised Aug 2024.

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