Robust identification conditions for determinate and indeterminate linear rational expectations models

Fanelli, Luca (2011) Robust identification conditions for determinate and indeterminate linear rational expectations models. Bologna, IT: Dipartimento di Scienze Statistiche "Paolo Fortunati", Alma Mater Studiorum Università di Bologna, p. 26. DOI 10.6092/unibo/amsacta/2986. In: Quaderni di Dipartimento. Serie Ricerche ISSN 1973-9346.
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It is known that the identifiability of the structural parameters of the class of Linear(ized) Rational Expectations (LRE) models currently used in monetary policy and business cycle analysis may change dramatically across different regions of the theoretically admissible parameter space. This paper derives novel necessary and sufficient conditions for local identifiability which hold irrespective of whether the LRE model as a determinate (unique stable) reduced form solution or indeterminate (multiple stable) reduced form solutions. These conditions can be interpreted as prerequisite for the likelihood-based (classical or Bayesian) empirical investigation of determinacy/indeterminacy in stationary LRE models and are particular useful for the joint estimation of the Euler equations comprising the LRE model by `limited-information' methods because checking their validity does not require the knowledge of the full set of reduced form solutions.

Document type
Monograph (Working Paper)
Fanelli, Luca
Determinacy, Identification, Indeterminacy, Linear Rational Expectations model
Deposit date
08 Mar 2011 10:14
Last modified
16 May 2011 12:17

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