A Unified Approach to Determinacy Conditions with Regime Switching

Jean Barthélemy, Seonghoon Cho and Magali Marx

Review of Economic Dynamics, 2024, vol. 54

Abstract: The conditions that ensure the existence of a unique stable equilibrium — determinacy conditions — for rational expectations models with Markov switching depend on the stability concept, contrasting with standard linear rational expectations models. In this paper, we offer a unified framework for the two commonly used stability concepts: boundedness and mean-square stability. We derive determinacy conditions for both concepts based on simple metrics. Qualitatively, we show that mean-square stable solutions are always at least as many as bounded solutions. We then apply and discuss our results in two monetary models. (Copyright: Elsevier)

Date: 2024
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DOI: 10.1016/j.red.2024.101240

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