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Computational Economics

, Volume 40, Issue 3, pp 265–291 | Cite as

On Boundary Conditions Within the Solution of Macroeconomic Dynamic Models with Rational Expectations

  • Frank Hespeler
Article
  • 97 Downloads

Abstract

This article develops a solution method, which integrates a transversality condition representing the terminal condition of a dynamic model with an infinite horizon into the solution of a macroeconomic rational expectations model. Thus this transversality condition can be used to decrease the potential degree of indeterminacy within the model by reducing the degrees of freedom. Conditions which assess the relevance of the method, are derived and discussed. Numerical simulations of example models substantiate the potential of the transversality condition to lower the degree of indeterminacy in their solutions.

Keywords

Transversality condition Rational expectations models Indeterminacy 

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Copyright information

© Springer Science+Business Media, LLC. 2012

Authors and Affiliations

  1. 1.Institute for Forecasting and Macroeconomic ResearchTashkentUzbekistan

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