On the Relationship Between Determinate and MSV Solutions in Linear RE Models

Bennett McCallum

No 297, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers the possibility that, in linear rational expectations (RE) models, all determinate (uniquely non-explosive) solutions coincide with the minimum state variable (MSV) solution, which is unique by construction. In univariate specifications of the form y(t) = AE(t)y(t+1) + Cy(t-1) + u(t) that result holds: if a RE solution is unique and non-explosive, then it is the same as the MSV solution. Also, this result holds for multivariate versions if the A and C matrices commute and a certain regularity condition holds. More generally, however, there are models of this form that possess unique non-explosive solutions that differ from their MSV solutions. Examples are provided and a strategy for easily constructing others is outlined.

JEL-codes: C6 (search for similar items in EconPapers)
Date: 2004-07
Note: TWP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published as McCallum, Bennett T. "On The Relationship Between Determinate And CSV Solutions In Linear Re Models," Economics Letters, 2004, v84(1,Jul), 55-60.

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Journal Article: On the relationship between determinate and MSV solutions in linear RE models (2004)
Working Paper: On the Relationship Between Determinate and MSV Solutions in Linear RE Models
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