Abstract

This paper considers linear rational expectations models from the linear systems point of view. Using a generalization of the Wiener-Hopf factorization, the linear systems approach is able to furnish very simple conditions for existence and uniqueness of both particular and generic linear rational expectations models. The paper provides two applications of this approach; the first describes necessary and sufficient condition for exogeneity in linear rational expectations models and the second provides an exhaustive description of stationary and cointegrated solutions, including a generalization of Granger's representation theorem. Finally, the paper provides an innovative numerical solution to the Wiener-Hopf factorization and its generalization.