@techreport{NBERw7087,
 title = "Role of the Minimal State Variable Criterion",
 author = "Bennett T. McCallum",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "7087",
 year = "2000",
 month = "March",
 URL = "http://www.nber.org/papers/w7087",
 abstract = {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.},
}