An improved solution technique for large economic models with consistent expectations

DOI10.1016/0167-6911(85)90067-2MaRDI QIDQ1059547zbMATH OpenOpenAlexFDO

Authors Stephen G. Hall

Publication date 1985

Published in Systems \& Control Letters (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/0167-6911(85)90067-2

zbMATH Keywords

Gauss-Seidellarge macro-economic modelsRational expectationssolution techniques

Mathematics Subject Classification ID

Applications of statistics to economics (62P20) Economic growth models (91B62) Economic time series analysis (91B84)

Review text

Rational expectations, when applied to the large macro-economic models, implies that the expectation of a variable must be the same as the eventual model forecast of that variable. This has presented large model users with some particular problems as the traditional model solution techniques are not capable of solving such models. Currently two different approaches have been used to solve this problem. These are described by \textit{S. Holly} and \textit{M. B. Zarrop} [Eur. Econ. Rev. 20, 23-40 (1983)], and \textit{R. C. Fair} [Amer. Econ. Rev. 69, 539-552 (1979)]. This note describes the technique which has been implemented as part of the National Institute's model solution software (NIMODEL); the technique is a simple extension of the traditional Gauss-Seidel solution technique; it appears to offer a considerable increase in efficiency and reliability.

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