Affiliation:
1. University of Salerno, University of Göttingen and CSEF , Via Giovanni Paolo II 132 , 84084 Fisciano SA , Italy
Abstract
Abstract
Rational expectations (RE) frameworks featuring informational constraints are becoming increasingly popular in macroeconomic research. A recent strand of literature has explored the analytics of RE models with informational subperiods, in which the occurrence of exogenous shocks is period-specific and decision makers condition their own choices and expectations upon a sequence of nested information sets (timing restrictions). Assuming the unrestricted (full information) RE model satisfies saddle-path stability, this paper provides (i) necessary and sufficient conditions for existence of an uncountably infinite set of linearly perturbed solutions to its restricted (informationally constrained) counterpart, and (ii) an algorithm for computing the full set of sunspot solutions when equilibrium indeterminacy occurs.
Subject
Economics and Econometrics
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