Saddlepoint Problems in Contifuous Time Rational Expectations Models: A General Method and Some Macroeconomic Ehamples / Willem H. Buiter.

Format:

Book

Author/Creator:

Buiter, Willem H.

Contributor:

National Bureau of Economic Research.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0020.

NBER technical working paper series no. t0020

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Saddlepoint Problems in Contifuous Time Rational Expectations Models

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

The paper presents a general solution method for rational expectations models that can be represented by systems of. deterministic first order linear differential equations with constant coefficients. It is the continuous time adaptation of the method of Blanchard and Kahn. To obtain a unique solution there must be as many linearly independent boundary conditions as there are linearly independent state variables. Three slightly different versions of a well-known small open economy macroeconomic model were used to illustrate three fairly general ways of specifying the required boundary conditions. The first represents the standard case in which the number of stable characteristic roots equals the number of predetermined variables. The second represents the case where the number of stable roots exceeds the number of predetermined variables but equals the number of predetermined variables plus the number of "backward-looking" but non-predetermined variables whose discontinuities are linear functions of the discontinuities in the forward-looking variables. The third represents the case where the number of unstable roots is less than the number of forward-looking state variables. For the last case, boundary conditions are suggested that involve linear restrictions on the values of the state variables at a future date. The method of this paper permits the numerical solution of models with large numbers of state variables. Any combination of anticipated or unanticipated, current or future and permanent or transitory shocks can be analyzed.

Notes:

Print version record

June 1984.