Partial Current Information and Signal Extraction in a Rational Expectations Macroeconomic Model: A Computational Solution

Laurian Lungu (), Kent Matthews and A. Patrick Minford

No E2006/1, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: Previous attempts at modelling current observed endogenous financial variables in a macroeconomic model have concentrated on only one observed endogenous variable - namely the short-term rate of interest. The solution method for dealing with more than one observed endogenous variable has thus far been computationally intractable. This paper applies a general search algorithm to a macroeconomic model with an observed interest rate and exchange rate to solve the signal extraction problem. The informational advantage of applying the signal extraction algorithm to all the current observed endogenous variables is examined in terms of the implication for policy from the misperceptions of specific macroeconomic shocks.

Keywords: Rational Expectations; Partial Current Information; Signal Extraction; Macroeconomic modelling (search for similar items in EconPapers)
JEL-codes: E37 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-01
New Economics Papers: this item is included in nep-cmp and nep-mac
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Published in Economic Modelling , 25 (2) , March 2008, pp. 255-273

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Related works:
Journal Article: Partial current information and signal extraction in a rational expectations macroeconomic model: A computational solution (2008)
Working Paper: Partial Current Information and Signal Extraction in a Rational Expectations Macroeconomic Model: A Computational Solution (2002)
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