Role of the Minimal State Variable Criterion in Rational Expectations Models

Bennett McCallum

International Tax and Public Finance, 1999, vol. 6, issue 4, 639 pages

Abstract: This paper concerns the minimal-state-variable (MSV) criterion for selection among solutions in rational expectationsmodels that feature a multiplicity of paths that satisfy all of the model's conditions. It compares the MSVcriterion with others, including the widely used saddle-path (dynamic stability) criterion. It is emphasized that theMSV criterion can be viewed as a scientifically useful classification scheme that delineates the unique solutionthat is free of bubble components. In the process of demonstrating uniqueness for a broad class of linear models,the paper exposits a convenient computational procedure. Applications to current issues are outlined. Copyright Kluwer Academic Publishers 1999

Keywords: expectations; bubbles; uniqueness; stability; state variables; multiplicity (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (90)

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DOI: 10.1023/A:1008746610773

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