The Identification Problem for Linear Rational Expectations Models

TL;DR

This paper revises previous results on the identification problem in linear rational expectations models, clarifying the conditions for existence and uniqueness of solutions.

Contribution

It corrects earlier claims by showing the (EU-LREM) condition is sufficient but not necessary for model identification.

Findings

(EU-LREM) condition is sufficient but not necessary

Clarification of conditions for existence and uniqueness

Improved theoretical understanding of rational expectations models

Abstract

This version corrects a number of mistakes that appeared in the previous draft. In particular, the (EU-LREM) condition is sufficient for existence and uniqueness but not necessary, as we had claimed. We are grateful to P. C. B. Phillips and to three anonymous referees for the substantial improvements to the paper since it first appeared. Any remaining errors are our own responsibility.