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Solving and estimating indeterminate DSGE models

Roger Farmer, Vadim Khramov () and Giovanni Nicolò

Journal of Economic Dynamics and Control, 2015, vol. 54, issue C, 17-36

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 prove that our method is equivalent to the solution method proposed by Lubik and Schorfheide (2003, 2004), and using the New-Keynesian model described in Lubik and Schorfheide (2004), we demonstrate how to apply our theoretical results with a practical exercise.

Keywords: Indeterminacy; Bayesian methods; Dynare (search for similar items in EconPapers)
JEL-codes: C19 C51 C63 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (102)

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Related works:
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013) Downloads
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013) Downloads
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:54:y:2015:i:c:p:17-36

DOI: 10.1016/j.jedc.2015.02.012

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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