Refining linear rational expectations models and equilibria

Seonghoon Cho; Bennett T. McCallum

doi:10.1016/j.jmacro.2015.09.004

Refining linear rational expectations models and equilibria

Seonghoon Cho, Bennett T. McCallum

Department of Economics

Research output: Contribution to journal › Article › peer-review

5 Citations (Scopus)

Abstract

This paper develops the case for forward convergence as a model refinement scheme for linear rational expectations models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the linear rational expectations models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically cogent in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.

Original language	English
Pages (from-to)	160-169
Number of pages	10
Journal	Journal of Macroeconomics
Volume	46
DOIs	https://doi.org/10.1016/j.jmacro.2015.09.004
Publication status	Published - 2015

Bibliographical note

Funding Information:
Seonghoon Cho acknowledges that this work was partly supported by the National Research Foundation of Korea Grant funded by the Korean Government ( NRF-2010-327-B00089 ) and by the Yonsei University Research Fund of 2011.

Publisher Copyright:
© 2015 Elsevier Inc.

All Science Journal Classification (ASJC) codes

Economics and Econometrics

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10.1016/j.jmacro.2015.09.004

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abstract = "This paper develops the case for forward convergence as a model refinement scheme for linear rational expectations models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the linear rational expectations models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically cogent in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.",

author = "Seonghoon Cho and McCallum, {Bennett T.}",

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N2 - This paper develops the case for forward convergence as a model refinement scheme for linear rational expectations models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the linear rational expectations models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically cogent in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.

AB - This paper develops the case for forward convergence as a model refinement scheme for linear rational expectations models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the linear rational expectations models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically cogent in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.

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JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

ER -

Refining linear rational expectations models and equilibria

Abstract

Bibliographical note

All Science Journal Classification (ASJC) codes

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