Sufficient conditions for determinacy in a class of Markov-switching rational expectations models

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

Markov-switching rational expectations (MSRE) models can bring out fresh insights beyond what linear rational expectations models have done for macroeconomics, as noted and predicted by Davig and Leeper (2007) and Farmer et al. (2009), among others. However, a lack of tractable methodological foundations may have hindered researchers from uncovering the salient features of MSRE models. This study proposes a solution method and derives very tractable sufficient conditions for determinacy and indeterminacy in the mean-square stability sense in general MSRE models with lagged endogenous variables. These tasks are accomplished by extending the forward method of Cho and Moreno (2011) developed for linear rational expectations models to MSRE models. We apply our methodology to a New-Keynesian model subject to regime-switching in monetary policy and find some unforeseen but intuitive determinacy results.

Original languageEnglish
Pages (from-to)182-200
Number of pages19
JournalReview of Economic Dynamics
Volume21
DOIs
Publication statusPublished - 2014 Feb 7

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Markov switching
Rational expectations models
Determinacy
New Keynesian model
Methodology
Monetary policy
Regime switching
Endogenous variables
Macroeconomics
Indeterminacy

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

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abstract = "Markov-switching rational expectations (MSRE) models can bring out fresh insights beyond what linear rational expectations models have done for macroeconomics, as noted and predicted by Davig and Leeper (2007) and Farmer et al. (2009), among others. However, a lack of tractable methodological foundations may have hindered researchers from uncovering the salient features of MSRE models. This study proposes a solution method and derives very tractable sufficient conditions for determinacy and indeterminacy in the mean-square stability sense in general MSRE models with lagged endogenous variables. These tasks are accomplished by extending the forward method of Cho and Moreno (2011) developed for linear rational expectations models to MSRE models. We apply our methodology to a New-Keynesian model subject to regime-switching in monetary policy and find some unforeseen but intuitive determinacy results.",
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Sufficient conditions for determinacy in a class of Markov-switching rational expectations models. / Cho, Seonghoon.

In: Review of Economic Dynamics, Vol. 21, 07.02.2014, p. 182-200.

Research output: Contribution to journalArticle

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