Why the determinacy condition is a weak criterion in rational expectations models

Moeen Mostafavi, Hamed Shakouri G. and Ali-Reza Fatehi

MPRA Paper from University Library of Munich, Germany

Abstract: This paper disputes what Blanchard and Kahn have reported as the solution of linear rational expectation(RE) systems many years ago. Their method leads to traditional determinacy condition which is used very much nowadays. In this paper we have a new look to the mathematical procedure of this solution method and the main problem in their solution will be shown. We introduce a new methodology for modeling the systems with expectation, while in future this way of modeling can be used to replace traditional RE models.

Keywords: Rational expectation; Determinacy condition; Stability; Uniqueness; Predictive control (search for similar items in EconPapers)
JEL-codes: C53 D84 E52 H30 (search for similar items in EconPapers)
Date: 2010-11-20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Proceeding of 2010 International Conference on Information and Finance ( ICIF 2010) (2010): pp. 208-212

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:28320

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