Predetermined and Non-Predetermined Variables in Rational Expectations Models

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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.

Published: Buiter, Willem H. "Predetermined and Non-Predetermined Variables in Rational Expectations Models." Economics Letters, Vol. !0 (1982), pp. 49-44.

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