Perturbation methods for Markov-switching DSGE model

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

No RWP 13-01, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: The macroeconomic environment often changes repeatedly over time, and often in a recurring manner. For example, the economy may switch between periods of high and low growth, or monetary policy may switch between periods of strong versus weak responses to inflation. An important question for economists is how to model the presence of these switches, and to capture how expectations about switches in the future may impact economic behavior. ; This paper develops a methodology for solving dynamic stochastic general equilibrium (DSGE) models in the presence of switching environments. The approach allows for features of the economy to change over time, and for consumers, firms, or policymakers to internalize the expectations of future changes on their behavior. ; the procedure. In one example, the economy switches between a high and low growth periods. In the second example, the monetary authority changes how strongly it responds to deviations of inflation from its inflation target. Both examples highlight that expectations of future changes impact behavior in important ways.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
https://www.kansascityfed.org/documents/7705/rwp13-01.pdf (application/pdf)

Related works:
Journal Article: Perturbation methods for Markov‐switching dynamic stochastic general equilibrium models (2016)
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 models (2013)
Working Paper: Perturbation Methods for Markov-Switching Models (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:rwp13-01

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Research Working Paper from Federal Reserve Bank of Kansas City Contact information at EDIRC.
Bibliographic data for series maintained by Zach Kastens ().