Bianchi, Francesco; Nicolò, Giovanni - In: Quantitative economics : QE ; journal of the … 12 (2021) 3, pp. 843-868
We propose a novel approach to deal with the problem of indeterminacy in linear rational expectations models. The method consists of augmenting the original state space with a set of auxiliary exogenous equations to provide the adequate number of explosive roots in presence of indeterminacy. The...