Understanding Markov-Switching Rational Expectations Models

Roger Farmer, Tao Zha and Daniel Waggoner

No 14710, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a set of necessary and sufficient conditions for equilibria to be determinate in a class of forward-looking Markov-switching rational expectations models and we develop an algorithm to check these conditions in practice. We use three examples, based on the new-Keynesian model of monetary policy, to illustrate our technique. Our work connects applied econometric models of Markov-switching with forward looking rational expectations models and allows an applied researcher to construct the likelihood function for models in this class over a parameter space that includes a determinate region and an indeterminate region.

JEL-codes: C02 C1 E0 E4 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-cba and nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (153)

Published as Farmer, Roger E.A. & Waggoner, Daniel F. & Zha, Tao, 2009. "Understanding Markov-switching rational expectations models," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1849-1867, September.

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Journal Article: Understanding Markov-switching rational expectations models (2009)
Working Paper: Understanding Markov-switching rational expectations models (2009)
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