Perturbation methods for Markov-switching DSGE models

Andrew Foerster, Juan F Rubio-Ramirez, Daniel Waggoner and Tao Zha

No 2013-01, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter space so that a steady state is well defined. With this definition, we show that the problem of finding an approximation of any order can be reduced to solving a system of quadratic equations. We propose using the theory of Grobner bases in searching all the solutions to the quadratic system. This approach allows us to obtain all the approximations and ascertain how many of them are stable. Our methodology is applied to three models to illustrate its feasibility and practicality.

Keywords: Markov-switching parameters; partition; higher order approximations; no certainty equivalence; quadratic system; Gröbner bases (search for similar items in EconPapers)
JEL-codes: C6 E1 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2013-03-01
New Economics Papers: this item is included in nep-dge, nep-ecm and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Perturbation methods for Markov-switching DSGE models (2014)
Working Paper: Perturbation Methods for Markov-Switching DSGE Models (2014)
Working Paper: Perturbation Methods for Markov-Switching DSGE Models (2013)
Working Paper: Perturbation Methods for Markov-Switching DSGE Models (2013)
Working Paper: Perturbation methods for Markov-switching DSGE model (2013)
Working Paper: Perturbation Methods for Markov-Switching Models (2010)
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