Time Varying Rational Expectations Models: Solutions, Stability, Numerical Implementation

Klaus Neusser ()

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: While rational expectations models with time{varying (random) coefficients have gained some esteem, the understanding of their dy- namic properties is still in its infancy. The paper adapts results from the theory of random dynamical systems to solve and analyze the stability of rational expectations models with time{varying (random) coefficients. This theory develops a \linear algebra" in terms of Lya- punov exponents defined as the asymptotic growth rates of trajecto- ries. They replace the eigenvalue analysis used in constant coefficient models and allow the construction of solutions in the spirit of Blan- chard and Kahn (1980). The usefulness of these methods and their numerical implementation is illustrated using a canonical New Key- nesian model with a time{varying policy rule.

Keywords: time-varying rational expectations models; random dynamical systems; Lyapunov exponents; multiplicative ergodic theorem (search for similar items in EconPapers)
JEL-codes: C02 C61 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-ore and nep-upt
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Citations: View citations in EconPapers (1)

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