TY  - JOUR
AU  - McCallum,Bennett T.
TI  - E-Stability vis-a-vis Determinacy Results for a Broad Class of Linear Rational Expectations Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12441
PY  - 2006
Y2  - August 2006
UR  - http://www.nber.org/papers/w12441
L1  - http://www.nber.org/papers/w12441.pdf
N1  - Author contact info:
Bennett T. McCallum
Tepper School of Business, Posner 256
Carnegie Mellon University
Pittsburgh, PA 15213
Tel: 412/268-2347
Fax: 412/268-6830
E-Mail: bm05@andrew.cmu.edu
AB  - It is argued that learnability/E-stability is a necessary condition for a RE solution to be plausible.  A class of linear models considered by Evans and Honkapohja (2001) is shown to include all models of the form used by King and Watson (1998) and Klein (2000), which permits any number of lags, leads, and lags of leads.  For this broad class it is shown that, if current-period information is available in the learning process, determinacy is a sufficient condition for E-stability. It is not a necessary condition, however; there exist cases with more than one stable solution in which the solution based on the decreasing-modulus ordering of the system’s eigenvalues is E-stable.  If in such a case the other stable solution(s) are not E-stable, then the condition of indeterminacy may not be important for practical issues.
ER  -