Solving Linear Rational Expectations Models with Predictable Structural Changes

Adam Cagliarini and Mariano Kulish
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Adam Cagliarini: Reserve Bank of Australia

The Review of Economics and Statistics, 2013, vol. 95, issue 1, 328-336

Abstract: Standard solution methods for linear stochastic models with rational expectations presuppose a time-invariant structure. Consequently, credible announcements that entail future changes of the structure cannot be handled by standard solution methods. This paper develops the solution for linear stochastic rational expectations models in the face of a finite sequence of anticipated structural changes. These events encompass anticipated changes to the structural parameters and also anticipated additive shocks. We apply the solution to some examples of practical relevance to monetary policy. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: linear stochastic rational expectations models; structural changes (search for similar items in EconPapers)
JEL-codes: C62 C63 E17 E47 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (38)

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Working Paper: Solving Linear Rational Expectations Models with Predictable Structural Changes (2008)
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