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A Solution Method for Linear Rational Expectation Models under Imperfect Information

Shibayama, Katsuyuki (2007) A Solution Method for Linear Rational Expectation Models under Imperfect Information. Working paper. Department of Economics, University of Kent at Canterbury

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Abstract

This paper has developed a solution algorithm for linear rational expectation models under imperfect information. Imperfect information in this paper means that some decision makings are based on smaller information sets than others.

f_t = Fk_t + Gx^t,S

where k_t and f_t are column vectors of crawling and jump variables, respectively, while x^t,S is the vertical concatenation of the column vectors of past and present innovations. The technical breakthrough in this article is made by expanding the innovation vector, rather than expanding the set of crawling variables.

However, imperfect information can significantly alter the quantitative properties of a model, though it does not drastically change its qualitative nature. This article demonstrates, as an example, that adding imperfect information to the standard RBC models remarkably improves the correlation between labour productivity and output. Hence, a robustness check for information structure is recommended.

JEL Classification: C63; C65; C68

Keywords: Linear rational expectations models, Imperfect Information

Item Type: Monograph (Working paper)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Katsuyuki Shibayama
Date Deposited: 01 Aug 2008 08:14 UTC
Last Modified: 06 Feb 2020 04:01 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/6256 (The current URI for this page, for reference purposes)
Shibayama, Katsuyuki: https://orcid.org/0000-0003-3472-398X
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