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 -