Standard solution methods for linear stochastic models with rational expectations presuppose a time-invariant structure. Consequently, credible announcements that entail future changes of the structure cannot be handled by standard solution methods. This paper develops the solution for linear...

Standard solution methods for linear stochastic models with rational expectations presuppose a time-invariant structure as well as an environment in which shocks are unanticipated. Consequently, credible announcements that entail future changes of the structure cannot be handled by standard...