Solving and Estimating Indeterminate DSGE Models

Roger Farmer, Vadim Khramov () and Giovanni Nicolò

No 19457, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We prove that our method is equivalent to the solution method proposed by Lubik and Schorfheide (2003, 2004), and using the New-Keynesian model described in Lubik and Schorfheide (2004), we demonstrate how to apply our theoretical results with a practical exercise.

JEL-codes: C11 C13 C54 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-ecm
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Farmer, Roger E.A. & Khramov, Vadim & Nicolò, Giovanni, 2015. "Solving and estimating indeterminate DSGE models," Journal of Economic Dynamics and Control, Elsevier, vol. 54(C), pages 17-36.

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Related works:
Journal Article: Solving and estimating indeterminate DSGE models (2015)
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013)
Working Paper: Solving and Estimating Indeterminate DSGE Models (2013)
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