Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142659
Authors: 
Sorge, Marco M.
Year of Publication: 
2013
Series/Report no.: 
EERI Research Paper Series 08/2013
Abstract: 
This note points out a hitherto unrecognised identification issue in a class of rational expectations (RE) models with news shocks. We show that different degrees of anticipation (information flows) have strikingly different implications for the identifiability of the underlying structural model, irrespective of its non-fundamental time-series representation. In particular, under full shock anticipation equilibrium reduced forms behave as noisy perfect foresight state motions, which are non-identifiable. As a consequence, the underlying news shocks model fails to be (first-order) identified. The identification failure is illustrated with a New Keynesian model that can be solved analytically.
Subjects: 
Rational expectations
perfect foresight
news shocks
identification
JEL: 
C1
E32
Document Type: 
Working Paper

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