Indeterminacy, Causality, and the Foundations of Monetary Policy Analysis

Bennett McCallum

Swiss Journal of Economics and Statistics (SJES), 2010, vol. 146, issue I, 107-120

Abstract: To be useful as a guide to behavior, a model that includes a relationship between x_t and z_t+1 must specify whether x_t is influenced by the expectation at t of z_t+1 or, that z_t+1 is inertially influenced by x_t. We show that, for a broad class of linear RE models, distinct causal specifications will be uniquely associated with distinct solutions. Alternatively, a solution refinement requiring continuity of solution coefficients with respect to basic parameters implies this same solution. For a given structure there is only one RE solution that is fully consistent with the model's specification.

Keywords: determinacy; learnability; causality; continuity (search for similar items in EconPapers)
JEL-codes: E4 E5 E52 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (4)

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