Rational Expectations Equilibrium with Econometric Models

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Abstract
We prove the existence of general economic equilibrium under uncertainty when agents form econometric models of the relationship among their private information, prices, and the state of the environment. The functional form of each agent's model is specified in advance, with a finite number of parameters to be determined. Agents are then thought of as performing linear least squares estimation of the parameters. Equilibrium requires not only that markets clear, but also that each agent be using the vector of parameter values which, within a compact convex set of parameters, gives the least squares best fit to the data that is generated by the working of the economy when agents adhere to their models.

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