Abstract
The aim of this Chapter is to show that standard control techniques (including optimal control) can be used with linear models containing rational expectations. It is argued that the major problem with rational expectations is that the initial values of the expectations states are unknown. This Chapter shows how an observer can be used to learn these states and at the same time be used to calculate control policies. Further, the basic aim of rational expectations is to allow for variables that can ‘jump’ to ‘news’. It is also shown that the observer can learn these disturbances.
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© 1998 Springer Science+Business Media New York
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Herbert, R.D. (1998). Observers for Linear Rational Expectations Models. In: Observers and Macroeconomic Systems. Advances in Computational Economics, vol 8. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-5583-4_2
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DOI: https://doi.org/10.1007/978-1-4615-5583-4_2
Publisher Name: Springer, Boston, MA
Print ISBN: 978-1-4613-7554-8
Online ISBN: 978-1-4615-5583-4
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