NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Role of the Minimal State Variable Criterion

Bennett T. McCallum

NBER Working Paper No. 7087 (Also Reprint No. r2260)
Issued in March 2000
NBER Program(s):   ME   EFG

This paper concerns the minimal-state-variable (MSV) criterion for selection among solutions in rational expectations (RE) models that feature a multiplicity of paths that satisfy all of the model's conditions. It compares the MSV criterion with others that have been proposed, including the widely used saddle-path (or dynamic stability) criterion. It is emphasized that the MSV criterion can be viewed as a classification scheme that delineates the unique solution that is free of bubble or sunspot components. This scheme is of scientific value as it (a) yields a single solution upon which a researcher can focus attention if desired and (b) provides the basis for a substantive hypothesis that actual market outcomes are generally of a bubble-free nature. In the process of demonstrating uniqueness of the MSV solution for a broad class of linear models, the paper exposits a convenient and practical computational procedure. Also, several applications to current issues regarding monetary policy are outlined.

download in pdf format
   (277 K)

email paper

This paper is available as PDF (277 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7087

Published: International Tax and Public Finance, vol 6, no. 4, pp. 621-639, 1999.

Users who downloaded this paper also downloaded these:
McCallum w9960 The Unique Minimum State Variable RE Solution is E-Stable in All Well Formulated Linear Models
McCallum t0232 Solutions to Linear Rational Expectations Models: A Compact Exposition
McCallum w0684 On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective
McCallum t0297 On the Relationship Between Determinate and MSV Solutions in Linear RE Models
McCallum w9218 Consistent Expectations, Rational Expectations, Multiple-Solution Indeterminacies, and Least-Squares Learnability
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us