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

Neusser, Klaus (13 September 2017). Time – Varying Rational Expectations Models: Solutions, Stability, Numerical Implementation (Discussion Papers 17-01). Bern: Department of Economics

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While rational expectations models with time–varying (random) coefficients have gained some esteem, the understanding of their dynamic 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 Lyapunov exponents defined as the asymptotic growth rates of trajectories. They replace the eigenvalue analysis used in constant coefficient models and allow the construction of solutions in the spirit of Blanchard and Kahn (1980). The usefulness of these methods and their numerical implementation is illustrated using a canonical New Keynesian model with a time–varying policy rule.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Neusser, Klaus

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

31 Aug 2020 15:39

Last Modified:

31 Aug 2020 15:39

JEL Classification:

C02, C61

BORIS DOI:

10.7892/boris.145837

URI:

https://boris.unibe.ch/id/eprint/145837

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