Refining Linear Rational Expectations Models and Equilibria
Seonghoon Cho () and
Bennett McCallum ()
No 18348, NBER Working Papers from National Bureau of Economic Research, Inc
This paper proposes forward convergence as a model refinement scheme for linear rational expectations (LRE) models and an associated no-bubble condition as a solution selection criterion. We relate these two concepts to determinacy and characterize the complete set of economically relevant rational expectations solutions to the LRE models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically meaningful in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.
JEL-codes: C62 D84 (search for similar items in EconPapers)
Note: EFG ME
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Published as Cho, Seonghoon & McCallum, Bennett T., 2015. "Refining linear rational expectations models and equilibria," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 160-169.
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