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  • Open Access

Indeterminacy, causality, and the foundations of monetary policy analysis

  • 1
Swiss Journal of Economics and Statistics2010146:BF03399296

  • Published:


To be useful as a guide to behavior, a model that includes a relationship between x t and zt+1 must specify whether x t is influenced by the expectation at t of zt+1 or, that zt+1 is inertially influenced by x t . We show that, for a broad class of linear RE models, distinct causal specifications will be uniquely associated with distinct solutions. Alternatively, a solution refinement requiring continuity of solution coefficients with respect to basic parameters implies this same solution. For a given structure there is only one RE solution that is fully consistent with the model’s specification.


  • Causality
  • Indetermacy
  • Relational Expectations Equilibria