Solving and Estimating Indeterminate DSGE Models

Roger Farmer and Vadim Khramov ()

No 9663, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We provide a selection method, based on Bayesian model comparison, to decide which errors to pick as fundamental and we present simulation results to show how our procedure works in practice.

Keywords: Bayesian estimation; Dynare; Indeterminacy (search for similar items in EconPapers)
JEL-codes: C11 C13 C54 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-cmp and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Solving and estimating indeterminate DSGE models (2015)
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013)
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013)
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