TY - JOUR
AU - McCallum,Bennett T.
TI - Causality, Structure, and the Uniqueness of Rational Expectations Equilibria
JF - National Bureau of Economic Research Working Paper Series
VL - No. 15234
PY - 2009
Y2 - August 2009
DO - 10.3386/w15234
UR - http://www.nber.org/papers/w15234
L1 - http://www.nber.org/papers/w15234.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 - Consider a rational expectations (RE) model that includes a relationship between variables x_{t} and z_{t+1}. To be considered structural and potentially useful as a guide to actual behavior, this model must specify whether x_{t} is influenced by the expectation at t of z_{t+1} or, alternatively, that z_{t+1} is directly influenced (via some inertial mechanism) by x_{t} (i.e., that z_{t} is influenced by x_{t-1}). These are quite different phenomena. Here it is shown that, for a very broad class of multivariate linear RE models, distinct causal specifications involving both expectational and inertial influences will be uniquely associated with distinct solutions--which will result operationally from different specifications concerning which of the model's variables are predetermined. It follows that for a given structure, and with a natural continuity assumption, there is only one RE solution that is fully consistent with the model's specification. Furthermore, this solution does not involve "sunspot" phenomena.
ER -