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Role of the Minimal State Variable Criterion in Rational Expectations Models

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journal contribution
posted on 01.08.1969, 00:00 by Bennett T. McCallum
This paper concerns the minimal-state-variable (MSV) criterion for selection among solutions in rational expectations models that feature a multiplicity of paths that satisfy all of the model''s conditions. It compares the MSV criterion with others, including the widely used saddle-path (dynamic stability) criterion. It is emphasized that the MSV criterion can be viewed as a scientifically useful classification scheme that delineates the unique solution that is free of bubble components. In the process of demonstrating uniqueness for a broad class of linear models,the paper exposits a convenient computational procedure. Applications to current issues are outlined.

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01/08/1969

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