 Determinacy and classification of Markov-switching rational expectations modelsJournal of Economic Dynamics and Control, 2021, vol. 127, issue C Abstract: In a general class of Markov-switching rational expectations models, this study derives necessary and sufficient conditions for determinacy, indeterminacy and the case of no stable solution. Classification of the models into these three mutually disjoint and exhaustive subsets is completely characterized by only one particular solution known as the minimum of modulus solution in the mean-square stability sense. The rationale behind this result comes from the novel finding that the solution plays the same role as what the generalized eigenvalues do for linear rational expectations models. Moreover, the solution has its own identification condition that does not require examining the entire solution space. The accompanying solution procedure is therefore computationally efficient, and as tractable as standard solution methodologies for linear rational expectations models. The proposed methodology unveils several important implications for determinacy in the regime-switching framework that differ from the linear model counterpart. Keywords: Minimum of modulus solution; Markov-switching; Determinacy; Mean-square stability (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:127:y:2021:i:c:s0165188921000506 DOI: 10.1016/j.jedc.2021.104115 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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