LIMITED-DEPENDENT RATIONAL-EXPECTATIONS MODELS WITH FUTURE EXPECTATIONS

This paper examines limited-dependent rational expectations (LD-RE) mo dels containing future expectations of the dependent variable. Limited dependence is of a two-limit tobit variety which may, for example, ar ise as a result of a policy of imposing limits on the movement of the dependent variable by means of marginal as well as intra-marginal inte rventions. We show that when the forcing variables are serially indepe ndent the model has an analytical solution which can be computed by ba ckward recursion. With serially correlated forcing variables, we discu ss an approximate solution method, as well as a numerically exact meth od that, in principle, can be implemented by stochastic simulation, al though in practice it is limited by available computational capacity. The paper discusses some properties of the approximate solutions and r eports the results of a limited number of Monte Carlo experiments in o rder to illustrate the computational feasibility of using the exact so lution when the fundamentals are serially independent and the approxim ate solution when they are serially correlated.