Estimating linear rational expectations models requires replacing the expectations of future, endogenous variables either with forecasts from a fully solved model, or with the instrumented actual values, or with forecast survey data. Extending the methods of McCallum (1976) and Gottfries and...

A popular interpretation of the Rational Expectations/Efficient Markets hypothesis states that, if the hypothesis holds, then market valuations must follow a random walk. This postulate has frequently been criticized on the basis of empirical evidence. Yet the assertion itself incurs what we...

This paper conducts a broad-based comparison of iterated and direct multi-step forecasting approaches applied to both univariate and multivariate models. Theoretical results and Monte Carlo simulations suggest that iterated forecasts dominate direct forecasts when estimation error is a...

The concept of cointegration (see e.g., Engle and Granger, 1987; Johansen, 1988) has extensively been used to model equilibrium relationships (see e.g., Johansen and Juselius, 1990; Ericsson, 1998). The links between economic and econometric concepts are now well understood and they have become part of...

We develop an estimated model of the U.S. economy in which agents form expectations by continually updating their beliefs regarding the behavior of the economy and monetary policy. We explore the effects of policymakers' misperceptions of the natural rate of unemployment during the late 1960s...

We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy. Policymakers...

In many professional labor markets the number of new workers follows a cyclical time path. This phenomenon is usually explained by means of a cobweb model that is based on the assumptions of myopic wage expectations and occupational immobility. Since both assumptions are questioned by the...

The purpose of this paper is to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. We also determine the optimal unrestricted and restricted policy responses to temporary as well as permanent shocks which both are...