This paper develops and applies a novel test of the Holt, et al.(1961) linear quadratic inventory model. It is shown that a central property of the model is that a certain weighted sum of variances and covariances of production, sales and inventories must be nonnegative. The weights are the...

A computationally feasible method for the full information maximum likelihood estimation of models with rational expectations is described in this paper. The stochastic simulation of such models is also described. The methods discussed in this paper should open the way for many more tests of the...

This paper compares numerically the asymptotic distributions of parameter estimates and test statistics associated with two estimation techniques: (a)a limited information one, which uses instrumental variables to estimate a single equation (Hansen and Singleton (1982)), and (b)a full...

The paper addresses two issues that arise in estimation of testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restrict ion is...

This paper characterizes identification in dynamic linear models. It shows that identification restrictions are linear in the structural parameters and are therefore easy to use. Using these restrictions, it analyzes the role of exogenous variables in helping to achieve identification

The paper presents a general solution method for rational expectations models that can be represented by systems of. deterministic first order linear differential equations with constant coefficients. It is the continuous time adaptation of the method of Blanchard and Kahn. To obtain a unique...

This paper provides an empirical examination of the hypothesis that the forward exchange rate provides an quot;optimalquot; forecast of the future spot ex-change rate, for five currencies relative to the dollar. This hypothesis provides a convenient norm for examining the erratic behavior of...

This paper proposes an explanation of the international home bias in equity based on ambiguity aversion. Doubts imply an additional hedging motif driven by the interaction between real exchange rate risk and ambiguity aversion. What matters is the long-run as opposed to the short-run risk....

In a very broad class of dynamic linear models, if agents possess knowledge of current endogenous variables in a least-squares learning process, determinacy of a rational expectations (RE) equilibrium is sufficient but not necessary for learnability of that equilibrium. Thus, since learnability...