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Partial current information and signal extraction in a rational expectations macroeconomic model: A computational solution

Lungu, Laurian, Matthews, Kent Gerard Patrick and Minford, Anthony Patrick Leslie 2008. Partial current information and signal extraction in a rational expectations macroeconomic model: A computational solution. Economic Modelling 25 (2) , pp. 255-273. 10.1016/j.econmod.2007.06.001

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Abstract

Previous attempts at modelling current observed endogenous financial variables in a macroeconomic model have concentrated on only one variable — the short-term rate of interest. This paper applies a general search algorithm to a macroeconomic model with an observed interest rate and exchange rate to solve the signal extraction problem. Firstly, the algorithm is tested against a linear model with a known analytical solution. Then, the algorithm is applied to all the observed current endogenous variables in a non-linear rational expectations model of the UK. The informational advantage of applying the signal extraction algorithm is evaluated in terms of the forecasting efficiency of the model.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HG Finance
Q Science > QA Mathematics > QA75 Electronic computers. Computer science
Uncontrolled Keywords: Rational expectations ; Partial current information ; Signal extraction ; Macroeconomic modelling
Publisher: Elsevier
ISSN: 0264-9993
Last Modified: 04 Jun 2017 03:19
URI: http://orca.cf.ac.uk/id/eprint/19738

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