Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If You Use a Screen Reader

This content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.

The Solution of Singular Linear Difference Systems under Rational Expectations

Robert G. King and Mark W. Watson
International Economic Review
Vol. 39, No. 4, Symposium on Forecasting and Empirical Methods in Macroeconomics and Finance (Nov., 1998), pp. 1015-1026
DOI: 10.2307/2527350
Stable URL: http://www.jstor.org/stable/2527350
Page Count: 12
  • Read Online (Free)
  • Download ($39.00)
  • Subscribe ($19.50)
  • Cite this Item
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Preview not available

Abstract

Many linear rational expectations macroeconomic models can be cast in the first-order form, AEtyt+1 = Byt + CEtxt, if the matrix A is permitted to be singular. We show that there is a unique stable solution under two requirements: (i) the determinantal polynomial |Az-B| is not zero for some value of z, and (ii) a rank condition. The unique solution is characterized using a familiar approach: a canonical variables transformation separating dynamics associated with stable and unstable eigenvalues. In singular models, however, there are new canonical variables associated with infinite eigenvalues. These arise from nonexpectational behavioral relations or dynamic identities present in the singular linear difference system.

Page Thumbnails

  • Thumbnail: Page 
1015
    1015
  • Thumbnail: Page 
1016
    1016
  • Thumbnail: Page 
1017
    1017
  • Thumbnail: Page 
1018
    1018
  • Thumbnail: Page 
1019
    1019
  • Thumbnail: Page 
1020
    1020
  • Thumbnail: Page 
1021
    1021
  • Thumbnail: Page 
1022
    1022
  • Thumbnail: Page 
1023
    1023
  • Thumbnail: Page 
1024
    1024
  • Thumbnail: Page 
1025
    1025
  • Thumbnail: Page 
1026
    1026