Computing Sunspot Solutions to Rational Expectations Models with Timing Restrictions

Marco Sorge

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Rational expectations (RE) frameworks featuring informational constraints are becoming increasingly popular in macroeconomic research. A recent strand of literature has explored the analytics of RE models with informational subperiods, in which the occurrence of exogenous shocks is period-specific and decision makers thus condition their own choices and expectations upon a sequence of nested information sets (timing restrictions). Assuming the unrestricted (full information) RE model satisfies saddle-path stability, this paper provides (i) necessary and sufficient conditions for existence of an uncountably infinite set of linearly perturbed solutions to its restricted (informationally constrained) counterpart, and (ii) an algorithm for computing the full set of (sunspot) solutions when equilibrium indeterminacy occurs.

Keywords: Rational expectations; Timing restrictions; Perturbation theory (search for similar items in EconPapers)
JEL-codes: C62 C63 (search for similar items in EconPapers)
Date: 2018-11-19
New Economics Papers: this item is included in nep-ore and nep-upt
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Forthcoming in The B.E. Journal of Macroeconomics

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Related works:
Journal Article: Computing sunspot solutions to rational expectations models with timing restrictions (2020)
Journal Article: Computing sunspot solutions to rational expectations models with timing restrictions (2020)
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