Identifying and Solving Multivariate Rational Expectations Models

John Hunter () and Christos Ioannidis ()

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: This article discuses the identification of Generalised Rational Expectations Models. It is shown that the necessary and sufficient conditions for local identification of the Quasi-Structural Form (Q-SF) derive from the first derivatives of the Non-Linear Instrumental Variables (NLIV) criterion. The necessary and sufficient conditions for local identification consist of an appropriately defined and informative instrument set and a Jacobian matrix with appropriate rank.However, these conditions do not identify the full structural form (SF) linked to either the true expectations or the full solution. For the identification of SF, the parameters need to be associated with a model that satisfies the transversality condition. It is shown that the testing of this condition is impossible when relying exclusively on the existing instruments.

Pages: 12 pages
Date: 2004-09
New Economics Papers: this item is included in nep-ecm and nep-ets
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Related works:
Working Paper: Identifying and Solving Multivariate Rational Expectations Models (2004)
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