On the study of a rational expectation model with lagged endogenous variables

ABSTRACT

A rational expectation model with lagged endogenous variables is used to describe how the current price level is influenced by the expectation and historic price level. The time domain of the rational expectation model is extended to a complex discrete time domain which is a collection of points along the real number line. The rational expectation model with lagged endogenous variables is solved in multi-dimensional cases where the agents possess multiple assets, and the current price of each asset is related to the expected price and historical prices. An example about price determination process of storable commodities is given to illustrate the advantages of the rational expectation model on isolate time domain.

KEYWORDS:

• Rational expectation model
• lag and forward operator
• isolate time domain
• Cagan model
• market clearing

2010 MATHEMATICS SUBJECT CLASSIFICATIONS:

• 34N05
• 27E70

Acknowledgments

The authors are very grateful to the reviewers for their helpful and valuable comments, which have led to a meaningful improvement of the paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work is supported by the Fundamental Research Funds for the Central Universities [JBK120504].