CAUSALITY, STRUCTURE AND THE UNIQUENESS OF RATIONAL EXPECTATIONS EQUILIBRIA

Consider a rational expectations model that includes a relationship between variables x(t) and z(t+1). To be useful as a guide to actual behavior, this model should specify whether x(t) is influenced by the expectation at t of z(t+1) or, alternatively, that z(t+1) is directly influenced by x(t). For a broad class of multivariate linear RE models, distinct causal specifications involving both expectational and inertial influences will be uniquely associated with distinct solutions-operationally, different specifications of which variables are predetermined. With a natural continuity assumption, there is only one RE solution that is fully consistent with the model's specification.