Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - The government behavioural constraint in rational expectations models
AU - Nobay, A.R.
AU - Peel, David
PY - 1982
Y1 - 1982
N2 - Models with rationalexpectations typically include state variables whose values are controlled by the government. Hence, the need to specify behavioural rules for the authorities. Our purpose is to show, in the context of a well-known Cagan type model of the demand for money, that the assumption of rationalexpectations imposes the hitherto neglected requirement of rationality of the postulated behaviour of government. In particular the occurance of non-unique solutions highlights the need for a rational choice between these on grounds other than mathematical convenience or ad hoc economic assumptions of minimum variance, terminal conditions etc.
AB - Models with rationalexpectations typically include state variables whose values are controlled by the government. Hence, the need to specify behavioural rules for the authorities. Our purpose is to show, in the context of a well-known Cagan type model of the demand for money, that the assumption of rationalexpectations imposes the hitherto neglected requirement of rationality of the postulated behaviour of government. In particular the occurance of non-unique solutions highlights the need for a rational choice between these on grounds other than mathematical convenience or ad hoc economic assumptions of minimum variance, terminal conditions etc.
U2 - 10.1016/0165-1765(82)90155-0
DO - 10.1016/0165-1765(82)90155-0
M3 - Journal article
VL - 9
SP - 221
EP - 227
JO - Economics Letters
JF - Economics Letters
SN - 0165-1765
IS - 3
ER -