Why the determinacy condition is a weak criterion in rational expectations models

Mostafavi, Moeen and Shakouri G., Hamed and Fatehi, Ali-Reza (2010): Why the determinacy condition is a weak criterion in rational expectations models. Published in: Proceeding of 2010 International Conference on Information and Finance ( ICIF 2010) (26 November 2010): pp. 208-212.

Abstract

This paper disputes what Blanchard and Kahn have reported as the solution of linear rational expectation(RE) systems many years ago. Their method leads to traditional determinacy condition which is used very much nowadays. In this paper we have a new look to the mathematical procedure of this solution method and the main problem in their solution will be shown. We introduce a new methodology for modeling the systems with expectation, while in future this way of modeling can be used to replace traditional RE models.

• Item Type: MPRA Paper
• Language: English
• Keywords: Rational expectation; Determinacy condition; Stability; Uniqueness; Predictive control
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

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