Solving Linear Rational Expectations Models with Predictable Structural Changes

Adam Cagliarini and Mariano Kulish
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Adam Cagliarini: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Standard solution methods for linear stochastic models with rational expectations presuppose a time-invariant structure as well as an environment in which shocks are unanticipated. Consequently, credible announcements that entail future changes of the structure cannot be handled by standard solution methods. This paper develops the solution for linear stochastic rational expectations models in the face of a finite sequence of anticipated structural changes. These events encompass anticipated changes to the structural parameters and anticipated additive shocks. We apply the solution technique to some examples of practical relevance to monetary policy.

Keywords: structural change; anticipated shocks; rational expectations (search for similar items in EconPapers)
JEL-codes: C63 E17 E47 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-mac
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https://www.rba.gov.au/publications/rdp/2008/pdf/rdp2008-10.pdf (application/pdf)

Related works:
Journal Article: Solving Linear Rational Expectations Models with Predictable Structural Changes (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2008-10

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