Abstract
This paper discusses the computation and interpretation of eigenvalues of forward-looking models. It expands results already present in Blanchard and Kahn (1980) to the case where there are singularities in the dynamics of the model. Anderson and Moore (1985) had proposed an iterative procedure based on successive singular value and QR decompositions. We introduce here a direct application of generalized eigenvalue methods.2 Finally, the paper presents an application of this methodology to discuss monetary policy rules in the framework of Fuhrer and Moore (1995) model.
I thank Douglas Laxton and Pierre Malgrange for many suggestions in the preparation of this paper. I remain however sole responsible for any remaining errors.
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References
Anderson, G and G Moore (1985), “A Linear Algebraic Procedure for Solving Linear Perfect Foresight Models”, Economics Letters, Vol. 17, pp. 247–252.
Blanchard, O and C Kahn (1980), “The Solution of Linear Difference Models under Rational Expectations”, Econometrica, Vol. 48, pp. 1305–1311.
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Juillard, M. (1999). The Dynamic Analysis of Forward-Looking Models. In: Hallett, A.H., McAdam, P. (eds) Analyses in Macroeconomic Modelling. Advances in Computational Economics, vol 12. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5219-2_9
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DOI: https://doi.org/10.1007/978-1-4615-5219-2_9
Publisher Name: Springer, Boston, MA
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