The Rpes of Rbcs and Other Dsges

In a broad class of non-linear representative agent models, represented by a system of difference equations, we replace rational expectations with linear forecast models conditioning on a predetermined set of regressors. Within this framework, a restricted perceptions equilibrium (RPE) corresponds to a forecast rule that is optimal among that class of models. Local uniqueness of a rational expectations equilibrium (REE) near the non-stochastic steady state is shown to guarantee existence and uniqueness of an RPE local to that steady state. This RPE is E-stable provided the REE is E-stable. A benchmark RBC model with government spending shocks is used to illustrate the theoretical results. JEL Classifications: D83; D84; E24