Working Paper: NBER ID: w18323
Authors: Bennett T. McCallum
Abstract: Linear RE models typically possess a multiplicity of solutions. Consider, however, the requirement that the solution coefficients must not be infinitely discontinuous in the model's structural parameters. In particular, we require that the solutions should be continuous in the limit as those parameters, which express quantitatively the extent to which expectations affect endogenous variables, go to zero. The paper shows that under this condition there is, for a very broad class of linear RE models, only a single solution.
Keywords: No keywords provided
JEL Codes: C00; C61; C62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| continuity of solution coefficients (C29) | unique solution (C29) |
| structural parameters approach zero (C51) | continuity of solution coefficients (C29) |
| continuity of solutions (C62) | expectations will not significantly affect solution expressions (D84) |
| expectation effects diminish as parameters approach zero (C51) | unique solution (C29) |