The RPEs of RBCs and other DSGEs

David Evans; George W. Evans; Bruce McGough

doi:10.1016/j.jedc.2022.104492

The RPEs of RBCs and other DSGEs

David Evans^*, George W. Evans, Bruce McGough

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

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Abstract

In a broad class of non-linear representative agent models, represented by a system of difference equations, we replace rational expectations with linear forecast models conditioning on a predetermined set of regressors. Within this framework, a restricted perceptions equilibrium (RPE) corresponds to a forecast rule that is optimal within that class of models. Local uniqueness of a stationary rational expectations equilibrium (REE) near the non-stochastic steady state is shown to guarantee the existence, uniqueness and E-stability of an RPE local to that steady state. A benchmark RBC model with government spending shocks illustrates the theoretical results.

Original language	English
Article number	104492
Journal	Journal of Economic Dynamics and Control
Volume	In Press
Early online date	10 Jul 2022
DOIs	https://doi.org/10.1016/j.jedc.2022.104492
Publication status	E-pub ahead of print - 10 Jul 2022

Keywords

Real business cycle model
Adaptive learning
E-stability
Restricted perceptions

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10.1016/j.jedc.2022.104492

Evans-2022-RPE-RBC-JEDC-AAM
Copyright © 2022 Elsevier B.V. All rights reserved. This work has been made available online in accordance with publisher policies or with permission. Permission for further reuse of this content should be sought from the publisher or the rights holder. This is the author created accepted manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1016/j.jedc.2022.104492.
Accepted author manuscript, 486 KBLicence: CC BY-NC-ND

Cite this

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AB - In a broad class of non-linear representative agent models, represented by a system of difference equations, we replace rational expectations with linear forecast models conditioning on a predetermined set of regressors. Within this framework, a restricted perceptions equilibrium (RPE) corresponds to a forecast rule that is optimal within that class of models. Local uniqueness of a stationary rational expectations equilibrium (REE) near the non-stochastic steady state is shown to guarantee the existence, uniqueness and E-stability of an RPE local to that steady state. A benchmark RBC model with government spending shocks illustrates the theoretical results.

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The RPEs of RBCs and other DSGEs

Abstract

Keywords

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