A General and Efficient Method for Solving Regime-Switching DSGE Models

Julien Albertini and Stéphane Moyen ()
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Stéphane Moyen: Deutsche Bundesbank

Computational Economics, 2024, vol. 64, issue 6, No 19, 3645-3682

Abstract: Abstract This paper provides a general representation of endogenous and threshold-based regime-switching models while also developing an efficient numerical solution method. Regime-switching occurs endogenously when certain variables cross threshold conditions that can themselves be regime-dependent. We illustrate our approach using a RBC model with state-dependent government spending policies. It is shown that regime-switching models involve strong non linearities and discontinuities in the dynamics of the model. However, our numerical solution which relies on simulation and projection methods with regime-dependent policy rules, proves to be accurate and sufficiently fast address these challenging aspects. Several also explore several alternative specifications for the model and the method.

Keywords: Regime-switching; RBC model; Simulation; Accuracy (search for similar items in EconPapers)
JEL-codes: C63 E3 (search for similar items in EconPapers)
Date: 2024
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Working Paper: A General and Efficient Method for Solving Regime-Switching DSGE Models (2020)
Working Paper: A General and Efficient Method for Solving Regime-Switching DSGE Models (2020)
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DOI: 10.1007/s10614-024-10570-z

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