Methods for measuring expectations and uncertainty in Markov-switching models

Francesco Bianchi

Journal of Econometrics, 2016, vol. 190, issue 1, 79-99

Abstract: I develop methods to analyze multivariate Markov-switching models. Formulas for the evolution of first and second moments are derived and then used to characterize expectations, uncertainty, impulse responses, sources of uncertainty, and welfare implications of regime changes in general equilibrium models. The methods can be used to capture the link between uncertainty and the state of the economy. Campbell’s present value decomposition is generalized to allow for parameter instability. Taking into account regime changes is shown to be important for expectations, welfare, and uncertainty. All results are derived analytically and are therefore suitable for structural estimation.

Keywords: Markov-switching VAR; DSGE; Moments; Expectations; Uncertainty; Impulse responses (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E52 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Methods for Measuring Expectations and Uncertainty in Markov-Switching Models (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:190:y:2016:i:1:p:79-99

DOI: 10.1016/j.jeconom.2015.08.004

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