Solving linear rational expectations models in the presence of structural change: Some extensions
Solving linear rational expectations models in the presence of structural change: Some extensions
Standard solution methods for linear rational expectations models assume a time-invariant structure. Recent work has gone beyond this by formulating solution methods for linear rational expectations models subject to structural changes, such as parameter shifts and policy reforms, that are announced in advance. This paper contributes to this literature by presenting solutions for some cases – imperfectly credible policy reforms; delayed announcement to some fraction of agents; and indeterminacy of the terminal solution (multiple equilibria) – that received little attention so far. These solutions are illustrated using several applications, including a New Keynesian model in which the Taylor principle is not satisfied by the terminal structure.
Announcements, Imperfect credibility, Indeterminacy, Rational expectations, Structural change
Hatcher, Michael
e0846252-6d46-44f8-ba3c-05cf1fba64ab
May 2022
Hatcher, Michael
e0846252-6d46-44f8-ba3c-05cf1fba64ab
Hatcher, Michael
(2022)
Solving linear rational expectations models in the presence of structural change: Some extensions.
Journal of Economic Dynamics and Control, 138 (May 2022), [104359].
(doi:10.1016/j.jedc.2022.104359).
Abstract
Standard solution methods for linear rational expectations models assume a time-invariant structure. Recent work has gone beyond this by formulating solution methods for linear rational expectations models subject to structural changes, such as parameter shifts and policy reforms, that are announced in advance. This paper contributes to this literature by presenting solutions for some cases – imperfectly credible policy reforms; delayed announcement to some fraction of agents; and indeterminacy of the terminal solution (multiple equilibria) – that received little attention so far. These solutions are illustrated using several applications, including a New Keynesian model in which the Taylor principle is not satisfied by the terminal structure.
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Accepted/In Press date: 13 March 2022
e-pub ahead of print date: 15 March 2022
Published date: May 2022
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© 2022 Elsevier B.V.
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Copyright 2022 Elsevier B.V., All rights reserved.
Keywords:
Announcements, Imperfect credibility, Indeterminacy, Rational expectations, Structural change
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Local EPrints ID: 456094
URI: http://eprints.soton.ac.uk/id/eprint/456094
ISSN: 0165-1889
PURE UUID: e8df13a6-3da1-47ac-ac7d-fa8c710cb29d
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Date deposited: 26 Apr 2022 14:48
Last modified: 17 Mar 2024 07:12
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