After some historical discussion of the rational expectations (RE) solution procedures of John Muth, Alan Walters, and Robert Lucas, this paper considers the relevance for actual economies of issues stemming from the existence of multiple RE equilibria. In all linear models, the minimum state...

An elementary exposition is presented of a convenient and practical solution procedure for a broad class of linear rational expectations models. The undetermined-coefficient approach utilized keeps the mathematics very simple and permits consideration of alternative solution criteria.

This paper concerns the minimal-state-variable (MSV) criterion for selection among solutions in rational expectations (RE) models that feature a multiplicity of paths that satisfy all of the model's conditions. It compares the MSV criterion with others that have been proposed, including the...