RDP 8706: Numerical Solution of Rational Expectations Models with and Without Strategic Behaviour 5. Conclusion

This paper has summarised the techniques frequently used for solving rational expectations models. It has also developed, in detail, an algorithm for solving rational expectations models when governments are assumed to act strategically in a multicountry setting. In the case of solving non-linear models, the Fair-Taylor technique is preferred over the Multiple-Shooting technique on the basis of computational cost and speed. It is also our experience that when non-linearities are of little importance, it is worth using a linear approximation to the non-linear model which can be solved very quickly using either the Blanchard-Kahn solution or the MSG algorithm.