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Template-Type: ReDIF-Paper 1.0
Title: Multiple Shooting in Rational Expectations Models
Author-Name: David Lipton
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Jeffrey Sachs
Author-Name: Lawrence H. Summers
Note: EFG PE
Number: 0003
Creation-Date: 1983-06
Order-URL: http://www.nber.org/papers/t0003
File-URL: http://www.nber.org/papers/t0003.pdf
File-Format: application/pdf
Abstract: This note describes an algorithm for the solution of rational expectations models with saddlepoint stability properties. The algorithm is based on the method of multiple shooting, which is widely used to solve mathematically similar problems in the physical sciences. Potential applications to economics include models of capital accumulation and valuation, money arid growth, exchange rate determination, and macroeconomic activity. In general, whenever an asset price incorporates information about the future path of key variables, solution algorithms of the type we consider are applicable.
Handle: RePEc:nbr:nberte:0003
Template-Type: ReDIF-Paper 1.0
Title: Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Robert E. Cumby
Author-Name: John Huizinga
Note: ITI IFM
Number: 0011
Creation-Date: 1983-07
Order-URL: http://www.nber.org/papers/t0011
File-URL: http://www.nber.org/papers/t0011.pdf
File-Format: application/pdf
Abstract: This paper introduces a limited-information two-step estimator for models with rational expectations and serially correlated disturbances. The estimator greatly extends the area of applicability of McCallum's (1976) instrumental variables approach to rational expectations models. Section I reviews McCallum%s method and discusses in detail the problems surrounding its use in many empirical c/ntexts. Section II presents the two-step two-stage least squares estimator (2S2S1) and demonstrates its efficiency relative to that of McCallum (1979). Section III provides a comparison nf several estim!tors for a two equation macroeconomic model with rational expectations due to Taylor (1979).
Handle: RePEc:nbr:nberte:0011
Template-Type: ReDIF-Paper 1.0
Title: Predetermined and Non-Predetermined Variables in Rational Expectations Models
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0021
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/t0021
File-URL: http://www.nber.org/papers/t0021.pdf
File-Format: application/pdf
Abstract: The distinctiof between predetermined and non-predetermined variables is a crucial one in rational expectations models. I consider and reject two definitions, one proposed by Blanchard and Kahn and one by Chow. Both definitions lead to possible misc1assifications. Instead I propose the following defin)tion. A variable is non-`redetermined if and only if its current value is a function of current anticipations mf future values of endogenous and/or exogenous variables. This definition focuses on the essential economic property of non-predetermined variables: unlike predetermined variables they can respond instantaneously to changes in expectations due to "news." The new definition also fits the structure of rational expectations models solution algorithms such as the one proposed by Blanchard and Kahn.
Handle: RePEc:nbr:nberte:0021
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Ignoring Heteroscedasticity on Estimates of the Tobit Model
Author-Name: Charles Brown
Author-Name: Robert Moffitt
Author-Person: pmo48
Number: 0027
Creation-Date: 1983-01
Order-URL: http://www.nber.org/papers/t0027
File-URL: http://www.nber.org/papers/t0027.pdf
File-Format: application/pdf
Abstract: We consider the sensitivity of the Tobit estimator to heteroscedasticity. Our single independent variable is a dummy variable whose coefficient is a difference between group means, and the error variance differs between groups. Heteroscedasticity biases the Tobit estimate of the two means in opposite directions, so the bias in estimating their difference can be significant. This bias is not monotonically related to the true difference, and is greatly increased if the limit observations are not available. Perhaps surprisingly, the Tobit estimates are sometimes more severely biased than are OLS estimates.
Handle: RePEc:nbr:nberte:0027
Template-Type: ReDIF-Paper 1.0
Title: Methods of Solution and Simulation for Dynamic Rational Expectations Models
Author-Name: Olivier J. Blanchard
Author-Person: pbl2
Note: EFG
Number: 0028
Creation-Date: 1983-03
Order-URL: http://www.nber.org/papers/t0028
File-URL: http://www.nber.org/papers/t0028.pdf
File-Format: application/pdf
Abstract: Many methods have been proposed for the solution and simulation of medium or large size models under the assumption of rational expectations. The purpose of this paper is to present these methods, and to show how and where each can be applied. The methods fall into two groups. Methods in the first can be used to solve for perfect foresight paths in non-linear models. Methods in the second can be used in linear models, to solve either for paths or processes followed by endogenous variables. All the methods described here have been used in empirical applications and computer algorithms are available for most.
Handle: RePEc:nbr:nberte:0028
Template-Type: ReDIF-Paper 1.0
Title: Optimal and Time-Consistent Polices in Continuous Time Rational Expectations Models
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0029
Creation-Date: 1983-08
Order-URL: http://www.nber.org/papers/t0029
File-URL: http://www.nber.org/papers/t0029.pdf
File-Format: application/pdf
Abstract: In this note the method of Hamiltonian dynamics is used to characterize the time-consistent solution to the optimal control problem in a deterministic continuous time rational expectations model. A linear quadratic example based on the work of Miller and Salmon is used for simplicity. To derive the time-consistent rational expectations (or subgame-perfect) solution we first characterize the optimal solution made familiar e.g. through the work of Calvo. The time-consistent solution is then obtained by modifying the optimal solution through the requirement that the co-state variables (shadow prices) of the non-predetermined variables be zero at each instant. Existing solution methods and computational algorithms can be used to obtain the behaviour of the system under optimal policy and under time-consistent policy.
Handle: RePEc:nbr:nberte:0029
Template-Type: ReDIF-Paper 1.0
Title: Pitfalls in the use of Time as an Explanatory Variable in Regression
Author-Name: Charles R. Nelson
Author-Name: Heejoon Kang
Note: ME
Number: 0030
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/t0030
File-URL: http://www.nber.org/papers/t0030.pdf
File-Format: application/pdf
Abstract: Regression of a trendless random walk on time produces R-squared values around .44 regardless of sample length. The residuals from the regression exhibit only about 14 percent as much variation as the original series even though the underlying process has no functional dependence on time. The autocorrelation structure of these "detrended" random walks is pseudo-cyclical and purely artifactual. Conventional tests for trend are strongly biased towards finding a trend when none is present, and this effect is only partially mitigated by Cochrane-Orcutt correction for autocorrelation. The results are extended to show that pairs of detrended random walks exhibit spurious correlation.
Handle: RePEc:nbr:nberte:0030
Template-Type: ReDIF-Paper 1.0
Title: Deep Structral Excavation? A Critique of Euler Equation Methods
Author-Name: Peter M. Garber
Author-Person: pga124
Author-Name: Robert G. King
Author-Person: pki21
Note: EFG
Number: 0031
Creation-Date: 1983-11
Order-URL: http://www.nber.org/papers/t0031
File-URL: http://www.nber.org/papers/t0031.pdf
File-Format: application/pdf
Abstract: Rational expectations theory instructs empirical researchers to uncover the values of 'deep' structural parameters of preferences and technology rather than the parameters of decision rules that confound these structural parameters with those of forecasting equations. This paper reevaluates one method of identifying and estimating such deep parameters, recently advanced by Hansen and Singleton, that uses intertemporal efficiency expressions (Euler equations) and basic properties of expectations to produce orthogonality conditions that permit parameter estimation and hypothesis testing. These methods promise the applied researcher substantial freedom, as it is apparently not necessary to specify the details of dynamic general equilibrium to study the behavior of a particular market participant. In this paper, we demonstrate that this freedom is illusory. That is, if there are shifts in agents' objectives which are not directly observed by the econometrician, then Euler equation methods encounter serious identification and estimation difficulties. For these difficulties to be overcome the econometrician must have prior knowledge concerning variables that are exogenous to the agent under study, as in conventional simultaneous equations theory.
Handle: RePEc:nbr:nberte:0031