Model Identification of Closed Economy with Rational Expectations

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HLOUŠEK Miroslav

Year of publication 2004
Type Article in Proceedings
Conference DATASTAT 2003 Proceedings
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords rational expactations; closed economy model; Phillips curve; Iterative Kalman Filter Smoother
Description This paper shows the way of solving linear difference model under rational expectations. The whole procedure is described in general form. The conditions for existence of unique solution are summarized. The system is solved first for the unstable part and then for the stable part to get the final solution. Some theoretical examples for the macroeconomic model of closed economy are made. A reaction of agents to shocks, when anticipated or not, is examined. An influence of distinct types of Phillips curve on an adjusment process is discussed. An application for the Czech economy is made. The results are illustrated in figures and commented.
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