Multiple Shooting in Rational Expectations Models
14 Pages Posted: 27 Jun 2007 Last revised: 7 Jul 2010
Date Written: June 1983
This note describes an algorithm for the solution of rational expectations models with saddlepoint stability properties. The algorithm is based on the method of multiple shooting, which is widely used to solve mathematically similar problems in the physical sciences. Potential applications to economics include models of capital accumulation and valuation, money arid growth, exchange rate determination, and macroeconomic activity. In general, whenever an asset price incorporates information about the future path of key variables, solution algorithms of the type we consider are applicable.
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