The Rpes of Rbcs and Other Dsges

29 Pages Posted: 4 Dec 2021 Publication Status: Submitted

See all articles by David Evans

David Evans

University of Oregon

George W. Evans

University of Oregon - Department of Economics; University of St. Andrews - School of Economics and Finance

Bruce McGough

University of Oregon

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 {\em restricted perceptions equilibrium} (RPE) corresponds to a forecast rule that is optimal among that  class of  models.  Local uniqueness of a rational expectations equilibrium (REE) near the non-stochastic steady state is shown to guarantee existence and uniqueness of an RPE local to that steady state.  This RPE is E-stable  provided the REE is E-stable.  A benchmark RBC model with government spending shocks is used to illustrate the theoretical results.

Suggested Citation

Evans, David and Evans, George W. and McGough, Bruce, The Rpes of Rbcs and Other Dsges. Available at SSRN: https://ssrn.com/abstract=3977543 or http://dx.doi.org/10.2139/ssrn.3977543

Abstract Views
124