Identification information and instruments in linear econometric models with rational expectations

This paper establishes a convenient set of criteria for the identification of linear simultaneous econometric models with rational expectations. We consider the model with one-period-ahead expectations conditional upon current exogenous or predetermined variables or their forecasts if current values...

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Bibliographic Details
Published inJournal of econometrics Vol. 38; no. 3; pp. 361 - 373
Main Authors Turkington, D.A., Bowden, R.J.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.07.1988
Elsevier
North-Holland Pub. Co
Elsevier Sequoia S.A
SeriesJournal of Econometrics
Subjects
Applications
Econometrics
Economic models
Economic theory
Exact sciences and technology
Identification
Mathematical analysis
Mathematics
Probability and statistics
Rational expectations
Sciences and techniques of general use
Statistics
Regression
Regression model
Identification
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Summary:This paper establishes a convenient set of criteria for the identification of linear simultaneous econometric models with rational expectations. We consider the model with one-period-ahead expectations conditional upon current exogenous or predetermined variables or their forecasts if current values are unavailable. A collection of instrument counting rules are developed which turn out to be identical with those for the standard textbook model, provided that we treat the expectational variables in the light of endogenous variates. This suggests that rationally formed expectational variables are best treated as a second set of endogenous variables. A general inverse relationship holds between information and identification: the less agents know about current values of exogenous variables the greater are the possibilities for statistical identification of the system describing their behavior.
ISSN:0304-4076
1872-6895
DOI:10.1016/0304-4076(88)90051-6