TY - JOUR
AU - McCallum,Bennett
TI - On the Relationship Between Determinate and MSV Solutions in Linear RE Models
JF - National Bureau of Economic Research Technical Working Paper Series
VL - No. 297
PY - 2004
Y2 - July 2004
DO - 10.3386/t0297
UR - http://www.nber.org/papers/t0297
L1 - http://www.nber.org/papers/t0297.pdf
N1 - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel:
Fax:
E-Mail: bm05@andrew.cmu.edu
AB - This paper considers the possibility that, in linear rational expectations (RE) models, all determinate (uniquely non-explosive) solutions coincide with the minimum state variable (MSV) solution, which is unique by construction. In univariate specifications of the form y(t) = AE(t)y(t+1) + Cy(t-1) + u(t) that result holds: if a RE solution is unique and non-explosive, then it is the same as the MSV solution. Also, this result holds for multivariate versions if the A and C matrices commute and a certain regularity condition holds. More generally, however, there are models of this form that possess unique non-explosive solutions that differ from their MSV solutions. Examples are provided and a strategy for easily constructing others is outlined.
ER -