NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Solution and Maximum Likelihood Estimation of Dynamic Nonlinear RationalExpectations Models

Ray C. Fair, John B. Taylor

NBER Technical Working Paper No. 5
Issued in October 1980
NBER Program(s):   EFG

A solution method and an estimation method for nonlinear rational expectations models are presented in this paper. The solution method can be used in forecasting and policy applications and can handle models with serial correlation and multiple viewpoint dates. When applied to linear models, the solution method yields the same results as those obtained from currently available methods that are designed specifically for linear models. It is, however, more flexible and general than these methods. For large nonlinear models the results in this paper indicate that the method works quite well. The estimation method is based on the maximum likelihood principal. It is, as far as we know, the only method available for obtaining maximum likelihood estimates for nonlinear rational expectations models. The method has the advantage of being applicable to a wide range of models, including, as a special case, linear ,models. The method can also handle different assumptions about the expectations of the exogenous variables, something which is not true of currently available approaches to linear models.

download in pdf format
   (1679 K)

email paper

This paper is available as PDF (1679 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/t0005

Published: Fair, Ray C. and John B. Taylor. "Solution and Maximun Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models." Econometrica, Vol. 51 , No. 4, (July 1983), pp. 1169-1185.

Users who downloaded this paper also downloaded these:
Taylor and Uhlig w3117 Solving Nonlinear Stochastic Growth Models: A Comparison of Alternative Solution Methods
Berndt, Hall, and Hall Estimation and Inference in Nonlinear Structural Models
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us