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Lucas (In: Brunner, K., Meltzer, A.H. (Eds.), The Phillips Curve and the Labor Markets, Supplementary Series to the Journal of Monetary Economics, 1976, pp. 19–46) pointed out, that when optimization is performed on a deterministic macro model, the resulting policy may not reflect the true...

In this paper we present a method for using rational expectations in a linear-quadratic optimizationframework. Following the approach put forward by Sims, we solve the model through a QZdecomposition, which is generally easier to implement than the more widely used method of Blanchardand Kahn.

In this paper we present a method for using rational expectations in a linear-quadratic optimization framework. Following the approach put forward by Sims, we solve the model through a QZ decomposition, which is generally easier to implement than the more widely used method of Blanchard and Kahn.