The Dimension of the Set of Causal Solutions of Linear Multivariate Rational Expectations Models

Document pages: 72 pages

Abstract: This paper analyses the number of free parameters and solutions of thestructural difference equation obtained from a linear multivariate rationalexpectations model. First, it is shown that the number of free parametersdepends on the structure of the zeros at zero of a certain matrix polynomial ofthe structural difference equation and the number of inputs of the rationalexpectations model. Second, the implications of requiring that some componentsof the endogenous variables be predetermined are analysed. Third, a conditionfor existence and uniqueness of a causal stationary solution is given.