3. A MODEL WITH FUTURE EXPECTATIONS
1. Examples
The Muth model is a rational expectation model involving a current endogenous expected variable. More precisely, the structural form of the model consists of an equation explaining the endogenous variable yt in terms of the expectation E[yt|It–1] and various exogenous variables among which some are observable and some are not. As shown in section 2, this equation has a unique solution. This uniqueness property greatly simplifies the analysis. It is also useful for practical purposes.
In this section we consider a modified version of the model. Formally, the change introduced in the original model might seem a priori rather small since it consists in replacing the current expectation E[yt|It–1] by ...
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