Understanding Markov-switching rational expectations models

Understanding Markov-switching rational expectations models

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-switc...

Minimal State Variable Solutions to Markov-Switching Rational Expectations Models

We develop a new method for deriving minimal state variable (MSV) equilibria of a general class of Markov switching rational expectations models and a new algorithm for computing these equilibria. We compare our approach to previously known algorithms, and we demonstrate that ours is both efficient and more reliable than previous methods in the sense that it is able to find MSV equilibria that ...

Markov-Switching Models

Solving Non-Linear Rational Expectations Models

A general framework for describing non-linear rational expectation models is developed that involves state variables, response variables and expectation variables. The solution to such models can be expressed in terms of a response function or an expectation function. Computational methods for solving such models involve approximating one of these functions. Alternative methods are characterize...

Solving Generalized Multivariate Linear Rational Expectations Models∗

We generalize the linear rational expectations solution method of Whiteman (1983) to the multivariate case. This facilitates the use of a generic exogenous driving process that must only satisfy covariance stationarity. Multivariate cross-equation restrictions linking the Wold representation of the exogenous process to the endogenous variables of the rational expectations model are obtained. We...