What exactly is happening when we linearize a model? Well, the answer is simple, we basically approximate non-linear equations with linear once. In context of macroeconomics we may have models which are non-linear. Thus in order to solve them there is need to put them in a linear form. In the following we are going to see how to log-linearizing a model by the means of a (very) simple example. Continue reading Log-Linearizing
When talking about rational expectations all of us know immediately what we mean, this was my belief until some months ago. However it seems to me that many people have a vague idea about the concept, but they fail to clearly state the most important underlying assumptions.
Continue reading Rational Expectations
Starting from today, Friday 18th May 2012, I will have the pleasure to enlighten you daily (or weekly) with posts and comments about all kinds of basic (and more advanced) economic theory thoughts and reasoning.
Continue reading Hello world!