Refining linear rational expectations models and equilibria

Seonghoon Cho, Bennett T. McCallum

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2 Citations (Scopus)

Abstract

This paper develops the case for forward convergence as a model refinement scheme for linear rational expectations 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 linear rational expectations models under determinacy and indeterminacy. Our results show (1) why a determinate solution is economically cogent in most, but not all, cases, and (2) that those models that are not forward-convergent have no economically relevant solutions.

Original languageEnglish
Pages (from-to)160-169
Number of pages10
JournalJournal of Macroeconomics
Volume46
DOIs
Publication statusPublished - 2015 Jan 1

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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