Estimation and Solution of Linear Rational Expectations Models Using a Polynomial Matrix Factorization

A method to solve and estimate multivariate linear rational expectations models is described. The method is based on an iterative factorization of the polynomial matrix that describes the lags and expected leads in the model. Our experience is that the method works well in a variety of applications where other methods are either difficult or expensive to use. This note describes a method that can be used to solve and estimate multi-variate linear rational expectations models. A number of methods to solve and estimate linear rational expectations models have been described in the litera