Forecasting and Policy Evaluation in Economies with Rational Expectations: The Discrete Time Case

Andrew Hughes Hallett

Bulletin of Economic Research, 1987, vol. 39, issue 1, 49-70

Abstract: Several techniques have been proposed for solving dynamic rational expectations models. This paper examines a simple method for discrete time applications. That solution is then used to derive and compute optimal policy selections (incorporating "noncausal" effects) which are also time consistent when sequentially reoptimized. Those decisions are shown to contain an optimal open loop component plus an innovations dependent correction mechanism. A numerical example is used to verify those properties. Copyright 1987 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1987
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