Understanding Markov-switching rational expectations models

Roger E. A. Farmer (), Daniel F. Waggoner and Tao Zha ()

Journal of Economic Theory, 2009, vol. 144, issue 5, pages 1849-1867

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.

Keywords: Stability; Non-linearity; Unique; equilibrium; Cross-regime; indeterminacy; Expectations; formation; Necessary; and; sufficient; conditions (search for similar items in EconPapers)
Date: 2009
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Related works:
Working Paper: Understanding Markov-Switching Rational Expectations Models (2009)
Working Paper: Understanding Markov-switching rational expectations models (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:5:p:1849-1867

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