Solving generalized multivariate linear rational expectations models

Fei Tan () and Todd Walker

Journal of Economic Dynamics and Control, 2015, vol. 60, issue C, 95-111

Abstract: We generalize the linear rational expectations solution method of Whiteman (1983) to the multivariate case. This facilitates the use of a generic exogenous driving process that must only satisfy covariance stationarity. Multivariate cross-equation restrictions linking the Wold representation of the exogenous process to the endogenous variables of the rational expectations model are obtained. We argue that this approach offers important insights into rational expectations models. We give two examples in the paper—an asset pricing model with incomplete information and a monetary model with observationally equivalent monetary-fiscal policy interactions. We relate our solution methodology to other popular approaches to solving multivariate linear rational expectations models, and provide user-friendly code that executes our approach.

Keywords: Solution methods; Analytic functions; Rational expectations (search for similar items in EconPapers)
JEL-codes: C32 C62 C65 E63 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:60:y:2015:i:c:p:95-111

DOI: 10.1016/j.jedc.2015.07.007

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