A General and Efficient Method for Solving Regime-Switching DSGE Models

Julien Albertini and Stéphane Moyen

No 2035, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper provides a general representation of endogenous and threshold-based regime switching models and develops an efficient numerical solution method. The regime-switching is triggered endogenously when some variables cross threshold conditions that can themselves be regime-dependent. We illustrate our approach using a RBC model with state-dependent government spending policies. It is shown that regime-switching models involve strong non linearities and discontinuities in the dynamics of the model. However, our numerical solution based on simulation and projection methods with regime-dependent policy rules is accurate, and fast enough, to efficiently take into all these challenging aspects. Several alternative specifications to the model and the method are studied.

Keywords: Regime-switching; RBC model; simulation; accuracy (search for similar items in EconPapers)
JEL-codes: E3 J6 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-ecm, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A General and Efficient Method for Solving Regime-Switching DSGE Models (2024)
Working Paper: A General and Efficient Method for Solving Regime-Switching DSGE Models (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2035

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