Finite-Order VAR Representation of Linear Rational Expectations Models: In a Nutshell

12 Pages Posted: 6 Nov 2018 Last revised: 11 Dec 2018

See all articles by Enrique Martínez-García

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: November 2, 2018

Abstract

This note summarizes the salient derivations of Martínez-García (2018). Specifically, it shows that the solution to a large class of linear rational expectations (LRE) models can be represented in finite-order VAR form. Martínez-García (2018) proposes a unified approach that uses a companion quadratic matrix equation to decouple the backward- and forward-looking parts of the canonical form of the LRE model and a Sylvester equation to pin down the solution and simplify its characterization so it can be expressed as a finite-order VAR.

Keywords: Linear Rational Expectations Models, Vector Autoregression Representation, Sylvester Matrix Equation, Quadratic Matrix Equation

JEL Classification: C32, C62, C63

Suggested Citation

Martinez-Garcia, Enrique, Finite-Order VAR Representation of Linear Rational Expectations Models: In a Nutshell (November 2, 2018). Available at SSRN: https://ssrn.com/abstract=3279250 or http://dx.doi.org/10.2139/ssrn.3279250

Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

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PO Box 655906
Dallas, TX 75265-5906
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214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

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