Partial current information and signal extraction in a\ud rational expectations macroeconomic model: a computational solution

Book English OPEN
Lungu, Laurian ; Matthews, Kent ; Minford, Patrick ; Cardiff University (2006)
  • Publisher: Cardiff University
  • Subject: HB

Previous attempts at modelling current observed endogenous financial variables in a macroeconomic model have concentrated on only one observed endogenous variable – namely the short-term rate of interest. The solution method for dealing with more than one observed endogenous variable has thus far been computationally intractable. This paper applies a general search algorithm to a macroeconomic model with an observed interest rate and exchange rate to solve the signal extraction problem. The informational advantage of applying the signal extraction algorithm to all the current observed endogenous variables is examined in terms of the implication for policy from the misperceptions of specific macroeconomic shocks.
  • References (13)
    13 references, page 1 of 2

    Barro, J., Robert (1980), “A Capital Market in an Equilibrium Business Cycle Model”, Econometrica (48), pp 1393-1417.

    Benassy, J. Pascal, (1999), “Analytical Solutions to a Structural Signal Extraction Model: Lucas 1972 Revisited”, Journal of Monetary Economics (44), pp 509-521.

    Benassy, J. Pascal, (2001), “The Phillips Curve and Optimal Policy in a Structural Signal Extraction Model”, Review of Economic Dynamics (4), pp 58-74.

    Graybill, F. A., An Introduction to Linear Statistical Models, vol. 1, McGraw-Hill, New York, 1961.

    Lucas, E. Robert, Jr. (1972), “Expectations and the Neutrality of Money”, Journal of Economic Theory (4), pp 103-124.

    Lucas, E. Robert, Jr. (1973), “Some International Evidence on Output-Inflation Trade-offs”, American Economic Review (63), pp 326-334.

    Matthews, K.G.P. and Minford, A.P.L. (1987), “Mrs. Thatcher's Economic Policies 1979-1987”, Economic Policy, October, no. 5, pp. 57-101.

    Matthews, K.G.P., Minford, A.P.L., and Blackman, S.C., (1994a), “The Quarterly Liverpool Model with Current Partial Information: An Exercise in Forecasting”, Journal of Forecasting (13), pp 507-518.

    Matthews, K.G.P., Minford, A.P.L., and Blackman, S.C., (1994b), “An Algorithm for the Solution of Non-Linear Forward Rational Expectations Models with Current Partial Information”, Economic Modelling (11), pp 351-358.

    Matthews, K.G.P., Minford, A.P.L., Riley, J., and Blackman, S.C., (1997), “Rational Expectations, Partial Current Information, and Macroeconomic Forecasting”, paper presented to the International Symposium of Forecasting, Barbados, 1997.

  • Metrics
    No metrics available
Share - Bookmark