We consider a real business cycle model with a productive externality and an aggregate non- convex technology set µa la Benhabib and Farmer embodying capacity utilization, which exhibits indeterminacy of the steady state and multiplicity of deterministic equilibria under plausible values of the...

The purpose of this paper is to show how to solve linear dynamic rational expectations models with anticipated shocks by using the generalized Schur decomposition method. Furthermore, we determine the optimal unrestricted and restricted policy responses to anticipated shocks. We demonstrate our...