Title: The spectral approach to linear rational expectations models
Authors: Majid Al Sadoon - Durham University (United Kingdom) [presenting]
Abstract: Linear rational expectations models are considered in the frequency domain under general conditions. Necessary and sufficient conditions are developed for the existence and uniqueness of particular and generic systems and characterize the space of all solutions as an affine space in the frequency domain. It is demonstrated that solutions are not generally continuous with respect to the parameters of the models, invalidating mainstream frequentist and Bayesian methods. The ill-posedness of the problem motivates regularized solutions with theoretically guaranteed uniqueness, continuity, and even differentiability properties. Regularization is illustrated in an analysis of the limiting Gaussian likelihood functions of two analytically tractable models.