Formulating and estimating continuous time rational expectations models
Lars Hansen and
Thomas Sargent ()
No 75, Staff Report from Federal Reserve Bank of Minneapolis
This paper proposes a method for estimating the parameters of continuous time, stochastic rational expectations models from discrete time observations. The method is important since various heuristic procedures for deducing the implications for discrete time data of continuous time models, such as replacing derivatives with first differences, can sometimes give rise to very misleading conclusions about parameters. Our proposal is to express the restrictions imposed by the rational expectations model on the continuous time process generating the observable variables. Then the likelihood function of a discrete time sample of observations from this process is obtained. Parameter estimates are computed by maximizing the likelihood function with respect to the free parameters of the continuous time model.
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:75
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ().