Rational expectations forecasts from nonrational models

Understanding Markov-switching rational expectations models

We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switc...

Solving Non-Linear Rational Expectations Models

A general framework for describing non-linear rational expectation models is developed that involves state variables, response variables and expectation variables. The solution to such models can be expressed in terms of a response function or an expectation function. Computational methods for solving such models involve approximating one of these functions. Alternative methods are characterize...

Solving Generalized Multivariate Linear Rational Expectations Models∗

We generalize the linear rational expectations solution method of Whiteman (1983) to the multivariate case. This facilitates the use of a generic exogenous driving process that must only satisfy covariance stationarity. Multivariate cross-equation restrictions linking the Wold representation of the exogenous process to the endogenous variables of the rational expectations model are obtained. We...

Are Economic Forecasts Rational?

Real Expectations: Replacing Rational Expectations with Survey Expectations in Dynamic Macro Models

Real Expectations: Replacing Rational Expectations with Survey Expectations in Dynamic Macro Models Jeff Fuhrer Abstract: This paper examines the implications of changing the expectations assumption that is embedded in nearly all current macroeconomic models. The paper substitutes measured or “real” expectations for rational expectations in an array of standard macroeconomic relationships, as w...