Understanding Markov-switching rational expectations models |
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Authors: | Roger E.A. Farmer Tao Zha |
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Affiliation: | a UCLA, United States b Federal Reserve Bank of Atlanta, United States c Emory University, United States |
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Abstract: | We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switching with forward looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region. |
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Keywords: | C02 E40 E52 |
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