Indeterminacy in a forward‐looking regime switching model

Roger Farmer, Daniel Waggoner and Tao Zha

International Journal of Economic Theory, 2009, vol. 5, issue 1, 69-84

Abstract: This paper considers the properties of Markov switching rational expectations (MSRE) models. We discuss possible solution concepts for MSRE models, distinguishing between stationary and bounded equilibria. For the case of models with one variable we provide a necessary and sufficient condition for uniqueness of a bounded equilibrium and we relate this condition to an alternative, the “generalized Taylor principle,” suggested by Davig and Leeper. We provide examples of models with multiple bounded and multiple stationary equilibria which suggest that it might be more difficult to rule out non‐fundamental equilibria in MSRE models than in the single regime case where the Taylor principle is known to guarantee local uniqueness.

Date: 2009
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https://doi.org/10.1111/j.1742-7363.2008.00094.x

Related works:
Working Paper: Indeterminacy in a forward-looking regime-switching model (2007)
Working Paper: Indeterminacy in a Forward Looking Regime Switching Model (2006)
Working Paper: Indeterminacy in a Forward Looking Regime Switching Model (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:ijethy:v:5:y:2009:i:1:p:69-84

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