How to Get the Blanchard-Kahn Form from a General Linear Rational Expectations Model

Raouf Boucekkine
Universidad Carlos III de Madrid
barouf@eco.uc3m.es

Cuong Le Van
CEPREMAP, Paris
LeVan@cepremap.msh-paris.fr

Katheline Schubert
Universtè Paris I

Abstract

In this paper we prove that every linear model with rational expectations can be transformed by means of an one-to-one mapping into another model which has one of the following properties:

i)

it is degenerated,

ii)

it is backward,

iii)

it has a Blanchard-Kahn form.

In addition to some simple illustrations, we provide two applications on two nonlinear forward-looking economic models in order to show how to use our theoretical analysis for local stability assessement.

Keywords: Expectations, Blanchard-Kahn form, reduction algorithms.